Automatic enrolment for pensions

Put quite simply, auto-enrol is a mandatory requirement for all employers to contribute into a qualifying workplace pension scheme.  

The Automatic Enrolment Regulations 2012 set out the details of the employers’ duties under the Pensions Act 2008 and the Pensions Act 2011. The regulations will require employers to auto-enrol staff into a qualifying pension scheme and pay a minimum contribution.

Commencing on 1st July 2012, these Regulations will become effective, however initially this will be for the larger employer as the Regulations will be phased in over a period of time and will be based upon the number of employees in the business.

For any assistance, please contact your consultant on 01274 626200.

The first staging date is for employers with 120,000 employees or more and as detailed above the regulations will be phased in, to give an indication to the timescales involved, the Department for Work and Pensions has stated that the duty to auto-enrol workers into a qualifying pension scheme will not apply to employers with fewer than 50 people in their PAYE scheme until June 2015 at the earliest.

All employers will be given a date by which they must auto-enrol (known as their “staging date”), by the Pensions Regulator.  It is from this staging date that it will mandatory for the employer to  auto-enrol eligible employees in a pension scheme when they reach the income tax threshold but contributions will kick in only from the employee threshold for national insurance contributions.

Employers will be able to operate a three-month postponement period, which will be the equivalent of a qualifying period and this can be applied for all new employees (ie newly eligible existing employees and new employees), so that employees on short-term contracts do not need to be auto-enrolled in a pension scheme.  However it should be noted that the employee can opt into the pension scheme during this period even without the employer’s contributions.

Probably the most important question in relation to this issue is how much it will cost employers.    Again the amount of contribution can be phased in however it is expected that by 2018 there must be an 8% contribution comprising of: an employer contribution (3%), an employee contribution (4%) and tax relief (1%). Of course employers can contribute in excess of the 3% minimum if they choose to do so.

As aforementioned, the contributions can be introduced on a phased basis, but it is expected that the minimum should be a contribution rate of 1% up to 30 September 2017, and 2% between 1 October 2017 and 30 September 2018.