Auto Enrolment Update

Posted on April 26, 2013

Auto-Enrolment is coming to every company in the UK which employs one person or more.

The government has now implemented workplace pension reform in an attempt to stimulate an increase in private savings. The initiative aims to address problems arising from increased life expectancy coupled with lower pension savings.

How it Works

The reforms, which started in October 2012, will require employers to automatically enrol eligible jobholders into a qualifying workplace pension scheme. The idea is that the employee, the employer, and the government will be required to make a contribution.

Who is an eligible jobholder?

  • Employees not already enrolled in a qualifying pension scheme
  • Employees aged 22 or over
  • Employees below the State Pension Age
  • Employees who earn more than the Personal Tax Allowance
  • Employees who work or ordinarily work in the UK

Can non-eligible jobholders be enrolled?

Yes they can, and once enrolled they have the same rights as an eligible jobholder.

Can an employee Opt-Out of the scheme?

Yes, they can, but they must be automatically re-enrolled every 3 years. Employers must be able to demonstrate that they have had no influence on an employee’s decision to opt-out. The penalties for this are severe under the regulations.

When will the changes affect my business?

The implementation has already begun, and is staged according to number of employees and tax code as summarised below:

PAYE size or reference Staging Date
120,000 or more 1st October 2012
50,000 – 119,999 1st November 2012
500 – 30,000 Dates spread over 2013
59 – 499 Dates spread over 2014
Less than 59 Dates between 1 January 2015-1st April 2017
Employers with no PAYE Scheme 1st April 2017
New Employers 1st May 2017 – 1st February 2018

 

Most companies should receive 12 months notice from The Pensions Regulator (TPR).

Employers can choose to bring their Staging Date forward by giving TPR one months notice which may be more convenient for employers looking to spread the changes over a longer period.

Phasing of Employer Contributions

The minimum contributions, based on the qualifying income bands, that must be paid into a pension will gradually increase over time. Moreover, the minimum that an employer must make is set to gradually increase. This is known as “phasing” as set out in the table below:

Phasing Date

Minimum Employer     Contributions    

Minimum Total     Contributions    

01/10/2012 – 30/09/2017

1%

2%

01/10/2017 – 30/09/2018

2%

5%

01/10/2018 onwards

3%

8%

 

What is the Qualifying Income Band that Contribution levels apply to?

The minimum contribution percentages must be applied to all Qualifying PAYE income between £5,668 and £41,450 per annum.

This means that the minimum contribution levels in reality are lower than the table presents.

For example, an employee on £24,000 per annum with an 8% total contribution under the guidelines may only have contributions based on income between £5,564 and £24,000 resulting in a real contribution level of 6.15%.

£24,000 – £5,668 = £18,332, multiplied by 8% = £1,466.56 per annum

As a percentage of annual salary, this equates to 6.11%

It is therefore vital that a proper assessment is carried out not only to check that employment contracts comply, but to also get a true cost for your company.

What are the Options for a Qualifying Pension Scheme?

Whilst the government has selected a Default Scheme called NEST run by TATA, there are many options available. NEST is fundamentally a private scheme like any other and there are more flexible options available and some at lower cost.

If you would like to discuss any of the issues relating to Auto Enrolment, please do contact us.

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