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Auto Enrolment in Pension Schemes
Automatic Pension Enrolment
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As of 2008 all UK businesses must enrol eligible workers in a compliant workplace pension scheme, for support in doing this and ensuring you and your employees are making correct contributions to the scheme, our experts are on hand to help.
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Workplace pensions changed in 2008 when the Government introduced Auto Enrolment.
Employers have been made responsible for the provision of a workplace pension scheme, our experts are on hand to help you through this process.
Our experts fully understand all the regulations and rules for payroll laid down by HMRC and can ensure that you are compliant with all of them and so not face any penalties or fees.
Pension Schemes changed in 2008 and they began to phase in auto–enrolment into work place pensions which as of February 1st, 2018 they are fully in place across the whole of the UK and in all sectors.
Previously, employees may have not received the benefits of a pension as their employees would not offer this or they were unaware that they had to apply to joining their companies pension scheme.
With the introduction of Automatic Enrollment in pension schemes this has now changed.
It has been phased in and now all companies, as of 1st February 2018 should be providing this.
Most workers in the UK are now automatically enrolled in a pension scheme by their employer.
Within one month of being automatically enrolled the worker may choose to opt out of the pension scheme.
However, all they must do to stay in the pension scheme, is do nothing.
Contributions will be deducted from their wages and put aside into their pension pot for as long as they are receiving wages or until they make the decision to take their money out.
Why is Auto enrolment happening?
In the UK the government has recognised and felt that workers are not preparing and saving enough for their retirement.
As a result of this when people come to retirement age they find that they are not able to live as comfortably as they thought they would on the state pension.
Moreover, with more people living longer, the state pension system has been strained to almost breaking point, as a result of this private pensions are increasingly important in providing the continued prosperity of people in their retirement.
The Pensions Act in 2008 introduced reforms to the pension system in the UK in an attempt to encourage workers to save more for their retirement.
The Pensions Act 2008 requires all employers to enroll eligible employees into a pension scheme which must be offered by the employer.
These reforms are now commonly referred to as automatic pension enrolment.
The reforms introduced under the Pensions Act of 2008 also recognises that not all employees will be eligible for automatic pension enrollment, and that some workers in the UK will not qualify at all. For example, the self employed.
However, there are provisions under the Pensions Act 2008 for workers who do not qualify for the scheme to join schemes and begin to build their retirement pot.
The Pensions Act 2008 ensures that all eligible workers will be automatically enrolled into a pension scheme and any deduction for said scheme will be made and paid by the employer and pay into the pension scheme on their behalf.
Joining an employers workplace pension scheme
As of February 2018, all UK employers are required by law to automatically enroll their workers in a workplace pension scheme.
This is known as automatic enrolment. So you should not have to do anything, but you may have to check if you are eligible.
Your employer should contact you with the options available to you for your pension scheme and provide information on the pension scheme that they are going to provide.
If you wish, you can opt out of the pension scheme, however, this is advised against.
It should be noted that not all UK workers will be eligible for automatic pension enrollment in their workplace pension scheme.
If you meet the eligibility criteria you will be automatically enrolled, and will not need to make any further action if you want to remain in your workplace pensions scheme.
If you are ineligible for automatic enrollment in your workplace pension scheme you may have to take further action.
If your earnings increase you may find that you have been automatically enrolled, or if your pay for even one period has increased you may have been enrolled.
What is an eligible jobholder for automatic pension enrolment?
If you are an eligible job holder your employer will now enroll you automatically into a work place pension scheme if you do not already have a pension scheme that you are paying into provided by your employer that meets certain criteria.
Both the worker and employer will make contributions to the employees pension pot.
If you do not want to join the pension scheme it is possible to opt out of it and you should contact your pension provider to do so.
However, if you have opted out, every three years your employer must attempt to enroll you into the pension scheme again.
What makes a worker eligible?
If you are over the age of 22 and under state pension age.
If you are earning over the pension threshold.
If you are a UK worker with a contract of employment, or have a contract to provide services or work personally.
What is the earning threshold for automatic pension enrollment?
In the UK the threshold for automatic pension enrolment is earning £10,000 a year or more.
However, you will be assessed each pay period for automatic pension enrollment.
The threshold is pro-rated, so the threshold actually changes dependent upon whether you are being paid weekly, fortnightly, 4 weekly or monthly.
If your wages increase, due to a bonus or overtime for one pay period, you may be automatically enrolled, even if it is just for that pay period.
In the event that you are paid monthly, the automatic enrollment threshold is set at £833 a month.
However it is £192 a week if you are paid weekly.
What is a non-eligible worker for automatic pension enrolment?
An employer does not have to automatically enroll workers into a workplace pension scheme if you are considered to be a non eligible worker.
However, a non-eligible worker does have the right to join the workplace pension scheme, and can expect their employers to also make contributions to their pension pots.
To be classified as a non eligible worker you will be:
Age between 16 and 21 or between state pension age and 74.
You will earn over the earning threshold of £10,000 a year or £192 a week.
Work in the UK or have a contract to provide services or work personally.
Alternatively you will:
Be aged between 16 and 74.
Have earnings that are between the earnings threshold and the lower earnings amount.
Work in the UK and have a contract to provide services or work personally.
What is the earnings threshold?
At the time of writing in the UK the earnings threshold stands at £10,000 a year, however you are going to be assessed each pay period for eligibility for automatic enrollment into your workplace pension scheme.
The earnings threshold is pro-rated, meaning that the threshold differs if you are paid weekly, fortnightly, four weekly, or monthly.
You may find that you have been automatically enrolled into your workplace pension scheme if your wages have increased, for example due to overtime or bonuses. even if this is for one pay period.
If you are paid monthly, you will be eligible if you earn over £833.
However, if you are paid weekly you will be automatically enrolled into your workplace pension scheme if you earn over £192 a week.
What is the lower earnings amount?
At the time of writing the lower earnings amount in the UK stands at £6,032 a year.
You will still be assessed for automatic pension enrollment with each pay period and may find that you are temporarily enrolled into your work place pension scheme if you earn over a certain amount as eligibility is pro-rated.
If your monthly earnings are £502.67 you will be considered to be earning the lower earnings amount.
If you are earning £116 a week it is considered to be the lower earnings amount. You can still enroll in your workplace pension scheme however you must contact your employer and you can expect them to make pension contributions as well.
What if I am not a non-eligible jobholder, entitled job holder or an eligible job holder?
If you are a worker in the UK and are not considered to be a non-eligible job holder, entitled worker or eligible worker then unfortunately you will most likely not be enrolled into a work place pension scheme and your employer does not have to enroll you into a work place pension scheme or make any contributions to your retirement pot.
This will be the case if you earn £6032 a year or less.
However you can still take out a private pension, for example a stakeholder pension or personal pension yourself and start saving towards our retirement pot.
Automatic Enrollment: How Much Will It Cost?
The government has set out a minimum amount for pensions contributions from both employers and employees.
However, many employers offer their employees higher contributions should they choose to accept it and contribute a little more themselves.
On top of this the government provides some tax relief on these pension payments.
These minimum contributions to your pension pots are based on what they call your qualifying earnings.
Your qualifying earnings are worked out on your earning before deductions, such as national insurance, income tax or student loans.
These earning not only include your hourly rate or salary, but any bonuses, commission and so on.
If it is decided that you only need to pay the minimum amount towards your pension scheme, it is worked out as a percentage which is shown below.
Your employer pays: 2.0% of your qualifying earnings until 6 April 2019 then rising to 3.0%
You pay: 2.4% of your qualifying earnings until 6 April 2019 then rising to 4.0%
The Government adds tax relief of: 0.6% of your qualifying earnings until April 2019 then rising to 1.0%
Total contribution: 5.0% of your qualifying earnings until 6 April 2019 then rising to 8.0%
Automatic Enrolment in The Automatic Pensions Scheme
As an employee if your earnings are below a certain threshold you may have to ask to be enrolled in the pension scheme as enrollment will not be automatic.
As an employer you will not have to pay contributions for everyone if they earn under a certain amount.
This is outlined below.
Workers without qualifying earnings: If you earn under £6032 a year you can ask to be enrolled in the pension scheme as you do not automatically qualify for the Automatic Pension Enrolment Scheme.
However, you are not entitled to employer contributions on your pension scheme.
Non-eligible Job Holder: If you earn between £6032 and £10,000 a year you must ask to be enrolled as it may not be done automatically, and you are entitled to employer contributions into your pension pot.
Eligible Job Holder: If you earn over £10,000 a year you will be automatically enrolled in the pension scheme and your employer must make contributions towards your pension pot.
For more information on choosing a suitable workplace pension scheme for your workforce and what we can do to assist you in this, please fill out the contact form and one of our pension experts will contact you shortly.
What work place pension schemes are available?
For it to be a qualifying workplace pension scheme it must meet certain criteria, which includes a minimum amount for contribution for employer and employee, as laid out above.
As an employer, there are a number of options that are available to you.
Use the pension scheme that is already in place, just as long as it meets the criteria.
Change a current workplace pension scheme so that it meets the qualifying criteria.
Start a new pension scheme that meets the qualifying criteria.
Use the National Employment Savings Trust (NEST), which is a scheme that is now available to all employers for use for some or all of their staff.
You can use any combination of these as long as it meets the contributions criteria.
A few are listed below, however there are also other private companies that offer pension schemes that will qualify.
National Employment Savings Trust (NEST)
NOW Pensions (not mentioned on the pensions regulator website)
Creative AutoEnrolment
Peoples Pension
Frequently Asked Questions About Auto Enrolment
Do I have to provide a pension for my employees?
Due to the pensions Act of 2008, employers must now enrol all qualifying employees into a workplace pension scheme that meets the criteria that is laid out under the workplace pension scheme.
In the event that your employee is eligible for the workplace pension scheme you and your employee must both pay contributions into the scheme.
How does pension auto enrolment work?
If your employee is eligible under the Pensions Act 2008 then you must automatically enroll them into a workplace pension scheme.
An employer will also make contributions if the employee is eligible.
Who is eligible for auto enrolment in pensions?
It is simpler to explain who is not eligible for the auto enrollment into a pension scheme.
If you are aged between 16-21, or between state pension age and 74 years old, and earn under £10,000 are considered non-eligible workers.
As are those that are aged between 16-74 and earn in between £5,772 and £10,000 a year. So, eligibility is based on age and earnings.
What is pension auto enrolment?
As of 2008, under the Pensions Act, qualifying workers must be enrolled into a workplace pension scheme, and employers and employees alike will make contributions into the pension scheme to support people more in their retirement.
How much does an employer contribute to pensions?
Under the old rates, which were applicable until 5th April 2008, the minimum employer contribution was 1% and the employees was 1%, 2% in total.
From 6th April 2018 until the 5th of April 2019 employers have to contribute 2% and employees 3%, making it a total contribution of 5%.
From 6th April 2019 onwards, employers must contribute 3% and employees contribute 5%, making a total pension contribution of 8%.
How do I qualify for a pension?
To be able to claim the full state pension you will have to make 35 years of contributions (as of April 2016).
In the event that you have made less than 35 years, as long as you have made 10 years or more then you will still qualify for the basic state pension. The amount will be adjusted so as to reflect the amount of qualifying years that you have made contributions.
What is the threshold for auto Enrolment?
The thresholds for 2018-2019 is:
Lower qualifying earning are £6032 per annum.
Earnings that instantly qualify you is £10,000 per annum.
Upper level of qualifying earnings is £46,350 per annum.
The changes for 2019-2020 are:
Lower qualifying earnings level will be £6,136 per annum.
Earnings that instantly qualify will be £10,000 per annum.
Upper qualifying earnings level will be £50,000 per annum.
What is a qualifying scheme for auto enrolment?
For a pension scheme to be considered to be a qualifying scheme needs to be a pension scheme that meets certain government criteria.
Currently, in the market place there are several schemes that can be considered to meet the criteria that are available for small businesses.
Does a SIPP qualify for auto enrolment?
A SIPP (Self-Invested Personal Pension) often will not meet the requirements for pension auto enrollment.
However a SIPP is often used by people who choose to opt out of their workplace auto-enrollment scheme.
What is the age limit for auto enrolment?
To be eligible for automatic pension enrollment you need to be aged 22 or over.
However, if you are 21 or younger and are earning over £6032 per annum, (which will rise to £6,132 in 2019-2020), you can still opt in to your the pension scheme that your employer has signed up to.
What is the criteria for auto enrolment?
To be eligible for automatic enrolment into a workplace pension scheme that meets the governments requirements, you must meet the following criteria.
You must be aged between 22 and State Pension Age and be earning £10,000 a year or more.
What percentage of pay should go into a pension?
One often cited rule for paying into your pension is to take your current age and divide it by two then pay that percentage into your pension.
So if you're 40 years old it will be 20%, 60 years old it will be 30%, and so on.
Can my employer pay into a personal pension?
If you are considered to be an eligible worker in the UK your employer must make payments into your pension fund.
However, if you earn under £503 per month then you employer does not have to make pension contributions.
Can I pay into a pension after age 75?
At 75 years old, the rules change for pension savings and the tax paid on them for any savings that can be passed on to a beneficiary when you die.
Your beneficiary is able to take the pension a lump sum payment or as income if you die after 75 years old, however, they will still be taxed on this income at their marginal rate of income tax.
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