Why is Auto Enrolment being introduced?
The government currently estimates that around seven million people in the UK are not saving enough for their retirement. People are also living longer so the size of their pension fund needs to be greater to fund this.
The government have realised they may not be able to afford to keep state pensions at their current level in the longer term as pensions are paid out of current taxation. The government has already taken some action on this in increasing the age at which the state pension can be accessed.
All of these factors have forced the government to introduce Auto Enrolment where the employer will have to introduce a workplace pension scheme and both the employer and employee will be forced to contribute into this.
The DWP estimates that the additional contributions alone will cost in the region of £3.2 billion. Ignoring these changes will not be an option as firms who fail to comply, could be fine up to £10,000 per day!!!
This guide is designed to give you an overview of Auto-enrolment, advise you of your obligations and help you through this process.
Auto Enrolment – The Basics
Auto Enrolment represents a massive change in workplace pensions. Previously Employees could decide if they wanted to join a workplace pension and you the Employer were not obliged to pay any contributions on their behalf.
Now, Employers will need to automatically join everyone earning over the “earnings trigger” (set at £10,000 for the 14/15 tax year) into a pension and Employers for the first time will be required to make minimum contributions on their behalf.
These new rules will probably mean extra contribution and administration costs to you so it is vital that you start planning for this as early as you can.
Burying you head in the sand is not an option as The Pension Regulator have stated that Employers who fail to comply with the regulations will be issued with a £400 fixed penalty followed by penalties of between £50 and £10,000 per day depending on the number of staff and the scale of the offence.
Who do I need to Auto Enrol?
Not everyone in your workforce will be eligible to join and you will need to look at your workforce and identify the people you need to auto-enrol. Auto Enrolment is required for anyone who:
- Works (or ordinarily works) in the UK under a contract of employment.
- Is aged between 22 and state pension age and earns over the earnings trigger (£10,000 for 2014/15). Overtime, bonuses, commission, statutory sick, maternity, paternity and adoption pay all count towards this figure.
Workers do have the option to opt out. However they have to make an active decision to do so. You have to repeat the auto enrolment process every three years for those who have opted out.
Who do I not need to Auto Enrol?
The rules mean the majority of your workforce will have to be auto enrolled. However there are some exceptions as follows:
These include the following
- Workers aged between 16 and 22
- Workers aged between State Pension Age and 75
- Earning between £5,772 and £10,000 (for 2014/15)
Although they do not need to be auto enrolled, you must however provide them with information and give them the right to opt in. If they opt in then you must pay an employer contribution on their behalf. If a worker subsequently becomes eligible (i.e. turns 22) you will need to auto enrol them if they have not already opted in.
People who earn less than £5,772 per annum are entitled to join, however here is no onus on you to contribute on their behalf. If their earnings increase over this earnings trigger, then they must be enrolled.
If someone has a spike in their earnings (for instance, because of a bonus or overtime) will need to be auto enrolled if it takes them over the weekly or monthly equivalent of the earnings trigger.
A visual summary of this is provided below.