Auto-enrolment

All UK employers will have to comply with the legislation regardless of the number of employees they employ.

Eligible jobholders must be automatically enrolled into a qualifying worklpace pension scheme. Eligible jobholders are those employees aged between 22 and state pension age earning over the primary income tax threshold. Employees falling outside of this age bracket or earning below the primary income tax threshold can opt-in.

By October 2018 employers and employees will have to contribute a combined minimum of 8% of a band of earnings between £5,668 (the lower limit of the qualifying earnings band for 2013/14) and £41,450 (the upper limit of the qualifying earnings band for 2013/14). A minimum of 3% must come from the employer with the balance being contributed by the employee with tax relief on the employee’s contribution also included.

Employees can opt-out but must be re-enrolled into the scheme every 3 years or on joining a new employer.

Auto-enrolment is being introduced in stages from October 2012, with the largest employers having to comply first:

Staging dates are based on the number of staff HMRC deemed an employer to have on 1 April 2012. Each employer can find out their own staging date by entering their PAYE number on the Pensions Regulator's website.

• Ensure that there is a qualifying scheme set up to accept the contributions.
• Ensure that all eligible employees are automatically enrolled in to the scheme (all new eligible employees must be automatically enrolled within one month of joining the company).
• Pay employer and employee contributions to the scheme - based on a band of qualifying earnings.

Contributions will be phased in as follows:

* Includes tax relief. Tax treatment is dependent on individual circumstances and may be subject to change in the future.

There are criteria to be met for a scheme to meet the auto-enrolment requirements so if you already offer a scheme to your employees you must make sure that it complies with the requirements.

The requirements of each employer will be different so it is important to look at all of the options.

Costs will vary depending on a number of factors but will include the cost of the contribution itself and the administration costs associated with implementing auto-enrolment into your current processes. Once the phasing of contributions is complete in 2018, an employer will need to make a minimum contribution of £624.96* per year for an employee earning the national average earnings of £26,500**.

* Calculated using the 2013-2014 automatic enrolment earning thresholds.
** Source: Office for National Statistics Annual Survey of Hours and Earnings 2012.