If you are an employer in the UK, the chances are, you will be familiar with the recent legislation regarding auto-enrolment. Larger businesses have already had to comply with the scheme, and now is the time that all other existing businesses, classed as small and micro employers, must comply. If you are one of the 1.8 million UK small and micro business employers who need to offer an auto-enrolment scheme, here’s what you need to know:
What does auto-enrolment mean?
Automatic enrolment means most UK employers are obligated to put into place a workplace pension scheme and automatically enrol their qualifying workers. Employers are then required to pay contributions towards their workers’ pensions every pay period.
When will I be affected?
The size of your business determines when you have to enrol your employees into a workplace pension scheme. This is called your staging date.
Very large employers were the first to reach their staging date in late 2012, and it is now the turn of small employers.
The Pensions Regulator will write to you regularly in order to confirm your staging date, however; you can also check ahead of schedule on The Pension Regulator’s website. All you need is your PAYE reference number.
Who do I need to enrol?
Workers fit into one of three groups: eligible, entitled and non-eligible. A worker assessment will help you identify which group each of your employees fits into.
Eligible workers must be automatically enrolled and you must pay minimum contributions. They are those who:
- Are not already in a qualifying pension scheme at work.
- Are aged between 22 and the state pension age (the earliest age they can claim their state pension).
- Work in the UK.
- Earn at least £10,000 in a year (this figure is reviewed by the government each tax year).
Non-eligible workers can ask to be enrolled into your scheme and if they do, you must pay minimum contributions. These include UK workers who are either:
- Aged between 16 and 22 or between state pension age and 74 and earn more than £10,000 in a year, or:
- Are aged between 16 and 74 and earn at least £5,824 but less than £10,000.
- Entitled workers can also ask to join, although you do not have to pay contributions for this group.
Entitled workers are those aged at least 16 but under 75, who earn less than £5,824.
How much am I expected to contribute?
- The government has set minimum standards that employers must meet. For most employers, this means paying minimum contributions, which will start at 1% of a worker’s “qualifying earnings” and increase to 3% over the next few years. When you contribute, so do your employees.
- It is important to understand that “qualifying earnings” does not mean all of an employee’s salary, but applies to earnings over a minimum amount (currently £5,824) up to a maximum (currently £42,385). These figures apply to the 2015/16 tax year and will be reviewed every year by the government.
- So for example, for someone earning £18,000 a year, the minimum percentages are calculated on the difference between £5,824 and £18,000, which is £12,176.
- Of course, as an employer you can contribute more than the statutory minimum. The minimum contribution levels are intended to set a foundation for building the savings habit.
How do I handle opt-outs? Can I ask my workers not to join?
- So far, most workers have chosen to stay enrolled in their workplace pension. However, they have the right to opt out, and opt-out rates currently average 9% (pdf).
- It is illegal to force or try to force a worker to opt out, and employers can be fined by the regulator for doing so. This means, for example, that you can’t offer a pay rise for opting out, or threaten a pay cut for staying in the scheme.
- If a member opts out – which should be done within one month of being enrolled – you must pay back any contributions taken from their pay and the pension scheme will refund any contributions you have made.
- After the one month opt-out period is over, members cannot opt out and be refunded, however, they can stop contributing. If they do, contributions already paid, including those from their employer, will remain invested in the pension scheme.
How do I choose the right pension scheme?
- Choosing the right qualifying scheme for your workers is an important decision. You might want to consider criteria such as the scheme’s investment approach, whether it uses clear language to communicate, and how easy it is to administer.
- Many employers choose to seek the help of an independent financial adviser; this is because the auto-enrolment process can be extremely time consuming so hiring a professional means that the research into appropriate schemes are done for you. They will take into account your company size, and find a scheme best suited to the needs of both employer and employees.
If you want to know how we can help you with your Auto-enrolment read more here or please contact us.