Workplace pensions auto enrolment

Over the next few years all employers will have to auto-enrol all “eligible” workers into a workplace pension scheme.  The biggest employers started doing this in October 2012, when the Pensions Act 2008 came into force.

An employer must enrol eligible workers who:

• Are aged between 22 and the state pension age
• Earn at least £9,440 a year (in 2013/2014)
• Work in the United Kingdom

When your business must start doing this (called a “staging date”) depends on how many people you have on your payroll. The Pensions Regulator will automatically write to an employer twelve months before the staging date as a reminder that action is needed. You can check the staging date by contacting the Pension Regulator earlier, if required.

An employer must contribute to the pension scheme for eligible employees. The law says a minimum percentage of an employee’s “qualifying earnings” must be paid into their workplace pension scheme.

Qualifying earnings are based on either the amount of an employee’s gross earnings between £5,668 and £41,450 a year (based on 2013/2014 figures) or the employee’s total gross salary.

The employer chooses which basis to use to work out an employee’s qualifying earnings.

Phased contributions for all banded earning schemes have to meet the following minimum levels, including tax relief:

                        up to                up to                from

                        Oct 2017          Oct 2018          Oct 2018

Employer         1%                   2%                   3%

Employee        1%                   3%                   5%

An employer can pay more than the legal minimum. For example, if the employer made the full payment, there would be no compulsion upon the employee to make additional payments towards saving for their retirement.

Existing pension schemes for employees should be checked to ensure that they offer an auto-enrolment facility that meets new legislation requirements.  Under auto-enrolment, employees who have been automatically enrolled can opt out permanently or temporarily, opting back in at a later date, but only once in any twelve month period and must give the employer notice.

Employers must not encourage employees to opt out and employees who take this decision must request the opt out form direct from the pension scheme provider. Employers must ensure that:

• Registration of a workplace pension scheme is made with the Pensions Regulator within four months of the staging date
• Re-registration is effected every three years
• Minimum contributions are made to the scheme and the contributions are paid to the pension provider

The Pensions Regulator has power to issue compliance notices and impose penalties should the rules be breached.

Birkett Long has an in-house team of independent financial advisers who can provide advice on work based pension schemes.