What Is Auto-Enrolment?

Auto-enrolment will mean workers being automatically enrolled into their employer's qualifying pension scheme without any active decision on their part. At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer's scheme. Auto-enrolment is meant to overcome this.

From 1 October 2012 (subject to the employer's own introduction date), all eligible workers will have to be auto-enrolled into a qualifying pension scheme.  Employers can choose the qualifying scheme they use, which could include NEST (the National Employment Savings Trust).  Each qualifying scheme must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it.  The scheme must also provide auto-enrolment for all eligible workers and for all new workers when they become eligible.
 

The Basics

The new employer duties are planned to come into force from 1 October 2012.  Under these duties, employers will have to:

• enrol eligible workers into a qualifying workplace pension arrangement;
• choose the qualifying scheme(s) they adopt to discharge the newly arising duty; and either 
  • make a minimum 3% contribution towards a defined contribution scheme (based on qualifying pensionable earnings)        
  •or NEST (the National Employment Savings Trust); or
  •offer membership of a defined benefit scheme or certain hybrid scheme which either has a contracting out statement 
  •or meets the test scheme standard.
 
An eligible worker is an employee aged between 22 and state pension age and earning above the income tax personal allowance (£7,475 in 2011/12).  Contributions will be payable on earnings between £5,035 and £33,540.

Employers will also have an ongoing duty to maintain qualifying pension provision for workers who;
• are already members of qualifying schemes; or
• become members of such schemes.

Gradual Introduction Of Auto-Enrolment

Although new duties come in from 1 October 2012, individual employers' own duties will be introduced gradually over the following four years and will be based on the size of the employer, typically by PAYE size.

Click here to discover your phasing in date: 'Click here'

There will be a three month waiting period before employers are required to enrol workers into their designated scheme. During this period, workers can choose to opt in to start saving straight away.

The largest employers who are due to auto-enrol between 1 October 2012 and 1 November 2012 will be allowed to start auto-enrolment from as early as July 2012 to avoid the Christmas period.

Employers will be given the flexibility to re-enrol workers three months either side of their automatic re-enrolment date.
 

Minimum Contributions For DC Schemes and NEST

Where a worker is automatically enrolled in a defined contribution (DC) scheme or NEST, there will be a minimum contribution of 8% of qualifying earnings, of which the employer must pay a minimum of 3%.  If the employer chooses to pay the minimum 3%, the worker will pay 4%, with a further 1% paid as tax relief by the government.  (Qualifying earnings is earnings between £5,035 and £33,540).

However, these minimum contribution levels will be phased in between October 2012 and October 2017. 

• October 2012 to September 2016 - total minimum of 2% of qualifying earnings with at least 1% from the employer.
• October 2016 to September 2017 - total minimum of 5% of qualifying earnings, with at least 2% from the employer.
• From October 2017, total minimum of 8% of qualifying earnings, with at least 3% from the employer.
 

Opting Out

Workers will be able to opt-out of their employer's scheme if they choose not to participate.  Workers who give notice during the formal opt-out period will be put back in the position they would have been in if they had not become members in the first place, which may include a refund of any contributions taken following automatic enrolment. 

Employer Duties

In summary employers will need to:

• Automatically enrol eligible works into a pension scheme

• Make contributions on their workers behalf

• Register with The Pension Regulator

• Provide workers with information about the changes and how they will affect them

• Keep accurate records regarding pension contributions

More detailed information is avaiable from The Pension Regulator or via our Contact Us page.
 

Where an IFA can help you

In order to help employers comply with the new legislation our approved IFAs will be able to offer the following services:

• Assess if your existing company or group pension can meet the new requirements

• Highlight any changes that need to be made and advise on the best course of action

• Calculate the cost auto-enrolment will add to your business

• Provide advice on integrated software systems to enable:
    • Calculating the correct pension contributions to be made from payroll data each month.
    • Store and generate documents needed to meet the regulatory requirements automatically
    • Provide advice to members where necessary
    • Link with your accountants software if necessary 

 • Help you ensure you meet the requirements with minimal disruption to your businesses.

 

 If you would like further information or advice regarding Auto - Enrolment plase enquire through our Contact Us page.