The UK Government has introduced Automatic Enrolment to workplaces in the UK. This makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also pay money into the scheme.
Why has this happened?
It was recognised that most people are not saving enough for retirement and, as a result may not be able to afford to live comfortably in their retirement on just the State Pension. As people are also living longer, there is increasing strain on the State benefits system, so private pension provision is becoming increasingly important.
To encourage workers to start building up retirement benefits, the Government introduced pension reforms through the Pensions Act 2008 that requires all employers to offer workplace pension schemes and to enrol eligible workers into their schemes. These reforms have become known as automatic enrolment.
What makes a worker eligible to join the pension scheme?
If a worker is not already in a qualifying workplace pension scheme, they will be automatically enrolled into a pension scheme if they meet the following criteria;
- Aged between 22 and State Pension age
- Earn at least £10,000 per year
- Usually (‘ordinarily’) work in the UK
If they do not fit the above criteria. a worker will still have the option to join their employers workplace pension scheme and in some cases an employer may even contribute.
How much does it cost both employers and employees?
The Government has set minimum levels of contributions that must be paid to the workplace pension scheme by you and/or your employer. These may be based on qualifying earnings or on a different definition of pensionable pay
Government adds tax relief to contributions paid. If a worker is a higher -rate taxpayer, they can receive further tax relief on contributions. This relief will need to be applied through a tax return.
If an employer decides to pay only the minimum amount, the minimum total contribution, as a percentage of your qualifying earnings is:
|Employer pays:||Worker pay:||
|The Government adds tax relief of:||Total contribution:|
|2.0% of your qualifying earnings until 6 April 2019 then rising to 3.0%||2.4% of your qualifying
earnings until 6 April 2019 then rising to 4.0%
|0.6% of your qualifying
earnings until April 2019 then rising to 1.0%
|5.0% of your qualifying
6 April 2019 then rising to 8.0%
Opting out of auto enrolment…
Automatic enrolment puts employees into the scheme, but it’s up to the employee if they wish to leave the pension scheme. This is referred to as opting out. There are time limits for opting out and getting a return of their contributions. It’s possible to opt out at any other time but the contributions and those of the employer will remain in the pension scheme. If an employee decides to opt out, it’s important to remember that their employer will be required to put the employee back into the scheme every three years. The employer would only re-enrol you if you still meet the automatic enrolment criteria.
- Every employer in the UK has to offer their staff a workplace pension scheme. If you employ one or more workers in the UK then the duties apply to you. You’ll have to set up a workplace pension and automatically enrol any workers who meet the age and earnings requirements. You’ll have to enrol any workers who ask and may have to make a contribution to the retirement pot of some or all of your workers.
- Employers need to complete a declaration of compliance with The Pensions Regulator.
To register you’ll need to go to The Pensions Regulator’s websiteand answer some questions.
You’ll be asked for information about your organisation and about the scheme you’re using to meet your duties.
Speak to one our team for a free no obligation initial consultation.
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