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Auto-enrolment creates a default position whereby workers will be automatically enrolled into their employer’s qualifying pension scheme unless they take an active decision to opt-out.
The Government wants to remove people’s reliance on the state in retirement by making people save into a pension fund while they are working.
All UK employers employing eligible jobholders will have to comply with the legislation regardless of the number of employees they employ.
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 £5,564 (the lower limit of the qualifying earnings band) and £42,475 (the upper limit of the qualifying earnings band). 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 will be introduced in stages from October 2012 with the largest employers having to comply first. The staging dates are as follows:
| Employer Size | Staging Date |
|---|---|
| 10,000 or more |
Between 1st October 2012 and 1st March 2013 (determined by number of workers) |
| 500 to 9,999 |
Between 1st April 2013 and 1st November 2013 (determined by number of workers) |
| 50 to 499 |
Between 1st January 2014 and 1st April 2015 (determined by number of workers) |
| 30 to 49 |
Between 1st August 2015 and 1st October 2015 (determined by last 2 characters of PAYE reference number) |
| Fewer than 30 |
Between 1st January 2016 and 1st April 2017 (determined by last 2 characters of PAYE reference number) |
|
New companies established on or after 1st April 2012 |
Between 1st May 2017 and 1st February 2018 (determined by date PAYE income first becomes payable) |
| Employer | Jobholder* | Total | |
|---|---|---|---|
| Staging date to 30th September 2017 | 1% | 1% | 2% |
| 1st October 2017 to 30th September 2018 | 2% | 3% | 5% |
| 1st October 2018 onwards | 3% | 5% | 8% |
* Includes tax relief. Tax treatment is dependent on individual circumstances and may be subject to change in the future.
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 employees must be automatically enrolled within 3 months of joining the company).
Pay employer and employee contributions to the scheme.
There are criteria to be met for a scheme to meet 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 £619.08* per year for an employee earning the national average earnings of £26,200**.
* Calculated using the 2012-2013 automatic enrolment earnings thresholds.
** Source: Office for National Statistics Annual Survey of Hours and Earnings 2011.
You need to start thinking about the strategy that you will have in place when your business qualifies for auto-enrolment. Forward planning will help to ensure that you introduce the changes in a managed way and minimise the impact that the pension reforms will have on your business. To discuss your requirements further, please contact your NFU Mutual Financial Consultant.
The information on this page is based on NFU Mutual’s understanding of legislation and practice as at 25th April 2012 which is subject to change.
Note* NFU Mutual Financial Consultants advise on
NFU Mutual products and services and in
special circumstances those of other
providers.
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