Automatic Enrolment For Pensions

Automatic Enrolment – sometimes ‘auto-enrolment’ – is a law that was brought in to help combat the fact that people were not putting enough into pensions or savings to support themselves through old age. It is a pension scheme, which, as the name suggests, see employees automatically enrolled, boosting the amount of people on the scheme.

How does automatic enrolment work?

As an employer, it is your duty to ensure that you enrol your employees into an eligible pension scheme by the correct ‘staging’ date.

Staging date

This is the date on which an employer has to enrol their employees. What date this is changes, depending on how many employees there are at the company and how much they are paid. All employers will need to go online to the government’s staging date calculator to find out when their staging date is. This is worked out from their PAYE reference.

In general, those with more employees will have an earlier staging date than those with fewer employees.

The automatic enrolment must be completed by the staging date.

Which employees?

Once an employer knows their staging date, they need to work out which employees are eligible. Any employee aged between 22 and pension age on the staging date, who earn more than £10,000 per year need to be enrolled.

Employees have the right to opt out of the automatic enrolment scheme, but employers must not deny their employees it, or try to convince them to opt-out.

How much is paid?

In the beginning, an employee will pay in 0.8 per cent of their salary, while the employer will pay 1.0 per cent. This is topped up by the government by 0.2 per cent, in the form of a tax relief. In total, this will mean the equivalent of 2.0 per cent of the employee’s salary will be saved per year for their pension.

However, as of early 2019, these figures are higher. The employee will contribute 4.0 per cent, the employer 3.0 per cent, and the government tax relief will be 1.0 per cent, meaning 8.0 per cent of the employee’s salary will be saved each year for their pension.

Compliance

Any non-compliance with the automatic enrolment pension can be met with hefty fines to the employer. It is therefore important that employers make sure they are up to date with all the changes that need to be made.

Within five months after the staging date, an employer must submit a compliance form to the government to show that they have complied with all the new laws and regulations.

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