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A business owner’s guide to pension auto-enrolment

It’s fair to say that the government’s auto-enrolment pension scheme has caused more than a few headaches for employers. Whilst the efforts are undoubtedly a critical move to ensure more of us are comfortable in retirement age, the complexity of the scheme, in addition to much misinformation, has unsurprisingly caused confusion.

This blog article explains, in much-needed plain English, what the auto-enrolment scheme is and what your responsibilities are as an employer.

Auto-enrolment in a nutshell

Automatic enrolment applies to the majority of businesses in the UK who employ others and requires that they run a pension scheme that automatically enrols any employee who qualifies. Both employers and employees then make contributions to the pension pot each pay period.

When were employers required to begin this scheme?

The date by which employers need to join the scheme is known as their ‘staging date’ – with each business given a date as defined by their size. For ‘very large’ employers, this date was the end of 2012. For those businesses that are deemed small or medium, the notification as to their staging date will or already has arrived by post from The Pensions Regulator. If you’re unsure as to whether you’ve received such correspondence, you can visit The Pensions Regulator’s website to check your date (you will need your PAYE reference to use their checking tool).

If you’re an employer who doesn’t pay via the PAYE scheme, your staging date will be 1 April 2017.

Who counts as employees who qualify?

Your employees will be categorised into one of three groups: eligible, entitled and non-eligible.Here’s an overview of how to work out who, fits where.

Eligible employees

Eligible employees must be enrolled onto a pension scheme, and you must make minimum contributions. Those who fall into this group are those that are:

  • Aged between 22 years and state pension age (currently 65 for men, 60 for women; rising to 66 for both men and women as of 2020).
  • Are not already on a qualifying pension scheme.
  • Earn a minimum of £10,000.

Non-eligible employees

It’s important to note that non-eligible workers can request to enter your scheme. If they do then join, you must commit to minimum contributions. Those who fall into this category are:

  • Aged between 16 and 22 or aged between state pension age and 74 and who earn under £10,000.
  • Aged between 16 and 74 who earn between £5,824 and £10,000.

Entitled employees

A final group are known as ‘entitled employees’. These are individuals who are older than 16 but younger than 75, whose annual earnings are less than £5,824. You do not need to make contributions for this group.

What will your contributions be?

Currently employers are largely required to pay contributions of a minimum 1% of qualifying earnings. This figure is going to be upped gradually over the coming years to the planned maximum of 3%. You’re free to pay more than this if you wish.

You should also note that this figure isn’t applied to your workers’ total salaries. Right now it only applies to earnings above the minimum of £5,824, and then only goes up to a maximum of £42,385. These figures may change each financial year (dependent on the government reviewing them).

Can workers opt out?

Workers can opt out – however statistics to date show that the large majority of employees have chosen to stay in (around 91% of workers [Government 2014]).

It’s vital that you do not request for your workers to opt out – this is against the law and you can be fined by the regulator.

How can you be sure that you choose the right pension scheme?

The decision you make as to the pension scheme your join is a critically important one. Core considerations should include: the scheme’s strategic approach to investment; the ease of understanding when it comes to language used and communication, and the ease of administration.

Robert Lewis Accountants demystify the world of pensions. We can help you in understanding your obligations, choosing the right pension scheme for your workers and ensuring that the process runs smoothly. If you still have questions about auto-enrolment, or would like to find out more about how we can help, simply get in touch. We offer obligation-free advice, and can provide straightforward guidance for a crystal clear understanding of auto-enrolment.

Call our team on 01268 271 234, email us on [email protected] or send us a message via our contact page.