This article provides a very brief overview of the pension auto-enrolment scheme which came into force on 30 June 2012. Currently, only employers employing more than 250 employees are affected but the new legislation will eventually require all employers in the UK to automatically enrol eligible workers in a pension scheme.
Employers will be able to use an occupational pension scheme or personal pension scheme provided it meets certain statutory requirements. If they choose not to do this, eligible jobholders will be enrolled in NEST, a central scheme set up by the government.
A jobholder can opt out of any scheme they have been enrolled on but whilst they remain a member of the scheme, the employer will be required to pay a minimum level of pension contributions.
When do the new employer duties apply?
The Pensions Regulator will write to employers to notify them of their staging date at 12 months and 3 months in advance of their staging date which will be:
- More than 250 employees: between 1 October 2012 and 1 February 2014.
- Between 50 and 249 employees: between 1 April 2014 and 1 April 2015.
- Fewer than 50 employees: between 1 June 2015 and 1 April 2017.
- New employers set up between 1 April 2012 and 30 September 2017: between 1 May 2017 and 1 February 2018.
How much will I have to pay into the scheme?
The amounts to be paid will be phased in:
|Period||Minimum employer contribution||Minimum total contributions (including tax relief)|
|First transitional period: employer’s staging date to 30 September 2017||1%||2%|
|Second transitional period: 1 October 2017 to 30 September 2018||2%||5%|
|Steady state period: 1 October 2018 onwards||3%||8%|
Based on a defined contribution scheme
Who must be auto-enrolled?
Once subject to the new duties, you must ensure that all eligible jobholders are enrolled in an automatic enrolment scheme with effect from their automatic enrolment date unless they are already active members of a qualifying scheme.
Who will be ‘eligible’?
Not all jobholders will have to be auto-enrolled in a pension scheme. To be eligible for auto-enrolment, a jobholder must:
- Be aged at least 22, but below state pension age.
- Earn more than the ‘earnings trigger’ in a relevant pay reference period. The trigger has been set at £9,440 a year in the 2013/14 tax year. Earnings include (but are not limited to) bonuses, overtime and statutory maternity, paternity or adoption pay.
Summary of steps to take in preparation for auto-enrolment
- Staging date. Be sure you know when this is and consider your workforce- categorise into eligible jobholders, non-eligible jobholders and entitled workers.
- Pension scheme. Will you enrol all in one scheme? Have you got an existing scheme which can be used? Have you checked it’s a qualifying scheme?
- Contracts of employment. Consider updating your contracts for new starters to reflect any changes.
- Payroll. Ensure your payroll is functioning correctly. It will need to make sure you contribute, the jobholder contributes and make a note of anyone who opts out as they will be due a refund.
- Records. Ensure proper record-keeping procedures are put in place.
- Registration. Register with the Pensions Regulator within four months of your staging date.
- Re-enrolment. Set up re-enrolment processes starting with the third anniversary of the first auto-enrolment dates.