What is Pension Auto Enrolment?

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14 May 2018

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The pension auto enrolment scheme is a government initiative. Its aim is to help more people save for their later life.

What Does it Do?

Auto enrolment forces employers to "automatically enrol" their eligible staff into a pension scheme. One benefit for staff, first of all, is that the employer must pay money into the scheme. It also takes the responsibility of having to enrol themselves in a pension away from employees.

Who is Eligible?

For someone to be auto-enrolled, he or she needs to:

  • Be at least 22 years old
  • Earn an annual salary of at least £10,000
  • Work in the UK
  • Not be in a suitable workplace scheme already

If he or she meets these criteria, they will also be eligible even if they're away on maternity or adoption leave. The same goes for if they're on a short-term contract or an agency pays their wages. If one of your employees earns less than £10,000, but more than £6,032 (for the tax year 2018-19), then you don't have to auto enrol them into the scheme. However, the employee can still ask to join, and you can't refuse them. Once you enrol them in this case, you must make contributions for them. To make your employees aware of the scheme, you should let them know in writing. In addition, you could design an auto enrolment employee handbook and give out copies to all staff.

Is There Anyone I Don't Have to Auto Enrol?

There are situations where you won't have to auto enrol your employee. They include when:

  • The staff member has already handed in their notice to leave, or you've given them their notice.
  • They have evidence of their lifetime allowance protection. This could be a certificate from HMRC.
  • You have already arranged for them a pension that meets the auto enrolment rules.
  • They're in a limited liability partnership.
  • Your employee is from another EU member state and is on an EU cross-border pension scheme.

Of course, your staff can still ask to join the scheme—you just don't have to auto enrol them.

How Much Do I Need to Contribute?

You (the employer), your staff, and the Government must all contribute a minimum amount. The Government does this through tax relief. As of the start of this tax year (6 April 2018), employees must pay 3% of their earnings into their pension. Employers pay 2% on top of this. These are the minimums. Both parties can pay more if they choose. The following tax year (6 April 2019), the minimum rises for both parties. Staff will pay 5% and employers will provide 3%. These lowest contributions apply to anything someone earns over £6,032, up to a limit of £46,350 in the tax year 2018/19. We call these earnings qualifying earnings. So, if someone earns £25,000 per year, you will ignore the first £6,032 and your contribution percentages will apply to the other £18,968. Furthermore, if your staff earn these amounts or less, you don't have to contribute to the pension:

  • £503 per month
  • £464 per 4 weeks
  • £116 per week

Do I Need to Set Up My Own Company Auto Enrolment Scheme?

The short answer is no. If you don't have a suitable scheme in place, and don't want to set one up, your staff can use the government-backed scheme NEST—National Employment Savings Trust.

What Do I Need to Do?

First of all, you can delay enrolling someone into a pension scheme for up to three months from his or her start date. You must tell them about the delay within one month. If they ask to join in the meantime, you must let them. You should include an auto enrolment clause in employment contracts for your staff, because this will show that you're complying with the legislation. As for the contract wording for pension auto enrolment, you don't need to go into the specifics of the pension scheme in the contract. So, once you auto enrol someone into a scheme, you must tell them the following:

  • The date you added them to the pension scheme
  • How tax relief will apply to them
  • What they need to do to opt out of the scheme if they want to
  • How much you will contribute and how much they must pay
  • The type of scheme
  • Who runs the scheme

Is There Anything I Can't Do?

You can't dismiss or discriminate against someone for being in a workplace pension scheme.

Opting Out

If one of your staff opts out—but they still meet the criteria—you must put them back into the scheme every three years. As with the first time, you should tell them all the points of the above list. You should provide a form if someone wants to opt out, and they should complete and return it to you. If they choose to opt out during the first month, they will get back their first pension pot payment. However, after the first month, payments stay in their pot. Finally, you shouldn't try to encourage or force staff to opt out. Speak to an Expert If you have any questions about work bonuses, contact our employment law experts today on 0808 145 3382.

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