Auto Enrolment – The Facts
October 2012 saw the introduction of major pension reforms affecting every employer in the UK, with Auto-Enrolment currently being phased in.
Under the pension reforms, new regulations require every employer, regardless of size, to auto enrol the vast majority of their workforce into a qualifying workplace pension scheme, and make contributions on their behalf. Employers should enrol eligible workers who are aged between 22 and state pension age, and earning above the income tax personal allowance. You’ll then need to deduct both employer and employee payments and pay them to the pension provider, ensuring your payroll systems can cope with the rigours of auto enrolment.
The qualifying pension scheme could be placed with the National Employment Savings Trust (NEST), who have committed to accepting any employer who wishes to use them for auto enrolment, or an alternative scheme provided it meets certain criteria. This criteria includes having a suitable default investment fund and charges below a prescribed threshold. Many existing schemes do not meet the stringent criteria, therefore it is important to check with the provider that any schemes you are planning to use are appropriate.
There is no requirement to enrol all workers in the same scheme, and employers can select two or more schemes, if required eg. one for managers and another for all other employees.
In addition, to comply with the new requirements, minimum standards must be met, which include: a minimum level of benefit payable for Final Salary Schemes or a minimum contribution level for Money Purchase schemes such as Group Personal Pensions, Group Self Invested Personal Pensions and Occupational Schemes.
As a matter of course, you should provide information to both eligible and non-eligible job-holders, and process any employees who choose to opt out. You’ll need to make refunds within given time scales, keep records and re-enrol the opt-out process every three years. (Individuals can opt out, but employers face financial penalties if they induce this.)
Even if you already have a suitable qualifying workplace pension in place, you will need to register with the Pensions Regulator to show you have met your Auto-Enrolment duties.
If your company offers a Money Purchase scheme, the minimum contribution level by 2019 is at least 8% of qualifying earnings, with the employer paying at least 3%.
If the employer chooses to pay the minimum 3%, the employee must pay 4%, with a further 1% paid as tax relief by the Government. The employer can pay more than the minimum 3%, which means the employee pays less.
Phased introduction of minimum contribution levels is as follows:
Auto Enrolment Staging Date – April 2018: minimum of 2% of qualifying earnings, with at least 1% from the employer
May 2018 – April 2019: minimum of 5% of qualifying earnings, with at least 2% from the employer From May 2019: minimum of 8% of qualifying earnings, with at least 3% from the employer.
However, alternative definitions of qualifying earnings can be used included total pay and basic pay. These each have their own minimum total and employer contribution levels and well as phasing levels such as 7% of P60 with at least 3% from the employer.
To help you get a better view of the employer duties legislation, or for advice on setting up a pension scheme, please contact our Financial Services department on 01473 408422.
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