From October 2012, employers have been required to automatically enrol their UK workers into a pension scheme, with a minimum level of contributions.
Key points about pension auto-enrolment:
- Automatic enrolment into pensions started from October 2012.
- It applies to UK workers aged between 22 and state pension age, with earnings of at least £10, 000 per year.
- Employer coverage will be staged over a period of years, starting with larger employers.
- Employers can auto-enrol into their own scheme or the government’s National Employment Savings Trust.
- Minimum contribution (or benefit) levels apply.
- Employers should start planning how they will implement this.
Who is covered?
Employers will have to automatically enrol all UK workers aged between 22 and state pension age, and who have earnings over £10,000 per annum.
Other workers will have the right to opt into their employer’s scheme, either with or without the benefit of employer contributions, depending on whether their earnings exceed £5,772.
Staged introduction of automatic enrolment
The auto-enrolment and minimum contribution requirements will be phased in from October 2012. The key dates are shown below:
October 2012 – October 2017
- Auto-enrolment will be staged by employer size, large through to small
- Employers using money purchase arrangements must contribute at least 1% of “qualifying earnings”, with a minimum total contribution of 2% qualifying earnings
- Employers with defined benefits schemes must allow opt-ins
October 2017 – October 2018
- The minimum money purchase contribution rises to 2% employer; 5% total
- Auto-enrolment begins in full for employers with defined benefit schemes
October 2018 onwards
- The minimum money purchase contribution rises to 3% employer; 8% total
The auto-enrolment process
The legislation requires employers to enrol automatically relevant workers within one month of starting work (or the date they become eligible, e.g. on reaching age 22). Contributions must be calculated from day one and deducted on the first occasion the worker is paid. However, recent changes to the legislation allow all employers to defer any worker’s automatic enrolment by up to 3 months, e.g. in order to align with key payroll dates. (The worker nonetheless has a right to opt-in to the scheme during this period.)
Once automatically enrolled, a worker will have one month to opt out by requesting an opt-out notice from the scheme (not the employer). The employer must then notify the scheme, and must refund all member contributions within one month.
Workers who opt-out must be automatically re-enrolled at 3-year intervals. These are only the most basic elements of the process; regulations set out many further detailed conditions to be met.
Which schemes can employers use for auto-enrolment?
An employer must enrol its workers into a “qualifying scheme”, meeting certain quality requirements. This could be the employer’s own occupational or contract-based pension scheme, or the government’s new National Employment Savings Trust (NEST).
You should start to identify that part of your workforce which will be affected by auto-enrolment, examine different strategies to control the extra cost, and explore ways of managing the automatic enrolment process that best suit your organisation’s needs.
The time needed to complete this exercise should not be underestimated; most employers will need to start the process at least a year in advance of their staging date (i.e. the date when you need to start auto-enroling your employees).
More information may be found on the pension regulators website: www.thepensionsregulator.gov.uk/automatic-enrolment.aspx