AUTOMATIC ENROLMENT: A QUIET REVOLUTION FOR UK PENSIONS
What is Auto-Enrolment?
Auto-Enrolment legally obliges employers to automatically enrol some workers into a pension plan and give other workers the option to join. It is estimated that approx. 7 million workers in the UK are currently not saving enough for their retirement, so the government has introduced Auto-Enrolment to get more people saving for their future. The onus for implementing the scheme rests with you, the employer.
When does it come in to effect?
Auto-Enrolment is being introduced in stages. It started with large firms (over 250 employees) back in October 2012 and is now being rolled out to medium size firms. It is up to employers to determine when their duties first apply. You can find out your ‘staging date’ by speaking to The Pensions Regulator (TPR) or looking on their website.
How do I set-up an Auto-Enrolment scheme?
Setting up an Auto-Enrolment scheme is complex. There are so many variables and for many companies it is uncharted territory. Before going ahead, either with or without expert advice, it’s worth taking time to think about the basics which are listed below.
Step 1. Determine which type of worker you employ
The first thing to do is to assess your workforce to determine which types of worker you employ. Categories are; eligible, non-eligible and entitled workers. There are different duties, depending on the types of worker employed. Some workers will need to be automatically enrolled, others require arranged membership of pension scheme.
There are three worker employee categories:
– Eligible workers; aged between 22-State pension age, earn above £9440pa
– Non-eligible workers; aged 16-74,earn £5669-£9440 - OR earn over £9440 & are under 22 or are over State pension age.
– Entitled workers; aged 16-74 and earn less than 5669.
Step 2: Fulfil the requirements for your workers which include:
- Eligible workers;
Provide prescribed information to the worker & pension scheme
Automatically enrol workers
Deduct worker contribution from salary & make employer contribution
Process any opt-out notices & refund any contributions paid
Every 3 years, re-enrol those who have previously opted out, more than 12 months before each re-enrolment date.
Keep records of the automatic enrolment & opting out processes and provide to TPR if requested.
If the eligible jobholder is already in a qualifying scheme, the employer must provide information within 2 months.
- Non-eligible workers;
Provide information to the worker, including the right to opt in to an automatic enrolment scheme.
Continue to assess the non-eligible worker in case they change category depending on age and earnings.
In membership is established, then all the above for Eligible workers applies.
- Entitled workers;
Provide information on their right to join a pension scheme.
Arrange pension scheme membership if required. It doesn’t have to be an automatic enrolment scheme.
Deduct contributions from salary & pay into scheme. Employers do not have to contribute, although they can choose to do so.
Continue to assess the entitled worker for a change in category.
Keep records of the joining process & provide info to TPR if requested
If worker is already in a scheme provided by the Employer, the Employer doesn’t have to provide them with any information.
How much will it cost?
How much it costs to get an expert to find you the right pension for your workforce and get the systems in place very much depends on the size of your business. Please get in touch with us to determine how we can help and how much it will cost. However employers contribution requirements are pre-determined. For example, for employees with qualifying earnings (£5669-£41450) the contributions are:
- Employer contributes at least 3% of qualifying earnings, phased in between 2012 - 2018.
- An agreement between the scheme provider & the worker, where the worker can be required to make up any difference to 8% of qualifying earnings (2018 onwards).
- Employer must be able to deduct any worker contribution from pay.
Is there any red tape?
Yes! Employers must register (with The Pensions Regulator) that they have an automatic enrolment scheme in place. This must be done no later than 4 months after their staging date. Re-registration is required approximately every 3 years.
A last word…
Don’t forget that as an employer you are legally obliged to comply and failure to do so can incur large fines. Getting a scheme set-up can take in the region of six months, so there is no time like the present to get the ball rolling.
To discuss your situation in more detail, please contact us and we will be happy to assist.
Get in touch for information and to book an initial meeting.
T: 01228 406 397
David Finan, Managing Director