We take another look at auto enrolment and the important dates. Check your staging date and make sure you understand how it affects you.
What is automatic enrolment?
If you employ one or more workers you have to put them into a pension scheme, if they meet certain criteria. Every employer has new legal duties to help all workers save for their retirement. Between now and 2018 all employers will have to automatically enrol all eligible employees into a qualifying pensions scheme and make contributions to their plan.
What do I need to do?
To comply, you must work out who's affected and choose a pension scheme for them. You'll have to communicate changes, enrol your workers into your scheme and make contributions.
When will I have to do it?
There are two key dates. Firstly your staging date – the date when the law is 'switched on' for your organisation. Find out your staging date by clicking the link below:
Secondly, your declaration of compliance (registration) date is the date you have to provide information to the regulator (5 months after your staging date).
You should have been contacted by the regulator 12 months before your staging date to advise you of this. Regardless of your current pension provision you should start planning for auto enrolment at least 9 – 12 months before your staging date.
Why is this scheme being brought in?
People in the UK are living longer and are likely to spend more than 20 years in retirement, but according to the government, we're not saving enough. Automatic enrolment is seen as the best way to overcome people's "savings inertia” – put simply, people will be saving for their retirement as they work, and their employers will be contributing too.
Who does this affect?
Everyone in work aged between 22 and state pension age who earns more than £10,000 a year (this is the figure for April 2014 to April 2015 and will be reviewed each year) and who is not already in a workplace pension scheme.
What about other people?
Workers who are not in that group can opt in, if they wish. If you are at least 16 but under 75, earn more than £5,772 a year and ask to be enrolled into the pension scheme, your company will have to put you in the scheme and also pay a minimum contribution.
Companies will also need to enrol any workers aged 16-74 who earn less than that, and who ask to be put into the scheme, although they do not need to pay contributions for them.
How much gets paid in?
The total minimum contribution will start at 2% of a worker's gross earnings (of which at least 1% must be paid by the employer). By October 2018 this minimum will have risen to 8%, made up of at least 3% from the company and 5% from the employee.
These percentages do not necessarily apply to all of an individual's salary, but only to what they earn over a minimum (£5,772 from April 2014) up to a maximum limit (£41,865 from April 2014).
Does everyone join at the same time?
No. All existing employers must have enrolled their employees by early 2018, but the roll-out is being staggered.
What if an employee does not want to join?
Workers are free to opt out if they wish. The government hopes that forcing employers to contribute, plus adding tax relief, will encourage people to stay in the scheme, but it has estimated that several million people will opt out. Some will take the view that they cannot afford it, while others will want to make their own arrangements.
What happens if an company does not enrol its workers into a scheme?
Employers who do not comply with the rules face a range of potential sanctions. Those who ignore the Pension’s Regulator’s first request could get a fixed penalty of £400. Employers who “wilfully and persistently” fail to comply face tougher penalties: £50 a day fines for those with fewer than five staff, rising to £2500 a day for those with 50 to 249 staff.
How does someone opt out?
A worker will have one month to complete and “opt out notice” (usually online or by telephone via their pension provider). Any contributions already made will be returned.