As you’re probably already aware, the rules surrounding workplace pensions have changed. Now, every employer in the UK must put qualifying staff into a workplace pension scheme that they contribute towards. This process is known as auto-enrolment.
Find out your staging date
Although the new pension regulations came into force on 1st October 2012, only the largest employers with more than 120,000 employees had to begin auto-enrolment from this date. Small companies with less than 50 employees have a ‘staging date’ (the date when automatic enrolment applies to them) sometime between 2015 and 2017.
You can check your staging date using The Pension Regulator’s website.
By your staging date, you must:
- Provide a qualifying pension scheme for your workers;
- Automatically enrol all eligible workers onto the scheme;
- Pay employer contributions for eligible workers;
- Tell all eligible workers they have been enrolled and have the right to opt out;
- Register with the UK Pensions Regulator to provide details of your qualifying scheme and the number of workers you have enrolled.
Setting up an appropriate scheme
Even if you already offer a workplace pension, you will need to check that it’s a qualifying scheme. You should do this at least three months before your staging date as it can take some time to complete. The Pensions Regulator provides information to help you find the right scheme.
Are your employees eligible?
Not all workers are eligible for auto-enrolment. Only workers that meet the following criteria need to be enrolled automatically. They must:
- Be aged between 22 and the state pension age
- Work in the UK
- Not be in a qualifying workplace pension scheme
- Earn at least £10,000 a year (thresholds are reviewed every tax year)
Workers who do not meet these criteria can ask to be enrolled onto a workplace pension scheme. If they do, you must pay minimum contributions. These workers include those who:
- Are aged between 16 and 22 and earn more than £10,000 a year
- Are between pension age and 74 and earn more than £10,000 a year
- Are aged between 16 and 74 and earn at least £5,824, but less than £10,000
Workers who are aged between 16 and 74 but earn less than £5,824 can ask to join the scheme but you do not have to pay minimum contributions for this group.
What minimum contributions must you make?
As an employer, you will be responsible for paying minimum contributions for any automatically enrolled employees. You will have to submit a declaration of compliance to The Pensions Regulator, keep appropriate records and remove any employees who opt out of the scheme.
The current statutory minimum level of pension contributions that must be made is 2 percent. This is made up of a one percent contribution from the employer, a 0.8 percent contribution from the employee, and 0.2 percent tax relief from the government. This level of contributions will increase over time, with the next rise expected in April 2018.
These contributions only apply to an employee’s qualifying earnings. The current threshold is anything over £5,824 and under £42,385. Therefore, the monthly pension contribution for an employee earning £25,000 would be £191.76.
Should you consider early auto-enrolment?
As more and more employers offer auto-enrolment, you might find employees start to look for this benefit when choosing a prospective employer. In that case, if you are yet to reach your staging date, you may decide to auto-enrol early to help you attract the very best team.
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