By Lyndsey Hall
A lot has changed in the area of auto-enrolment since our first post back in March 2014, so here is an update with the key facts and figures:
- Pension contributions come from three places: deductions from your salary, your employer’s contribution, and a government contribution in the form of tax relief.
- Your staging date depends on how many staff you (or your boss) employ, you can find out by entering your PAYE number onto the Pension Regulator‘s website.
- All businesses must enrol all eligible staff onto a workplace pension by April 2017 (for businesses started before 2012, February 2018 for businesses started since then.)
Who is eligible?
In order to be eligible for auto enrolment, there are a few criteria that employees must meet. If you are not eligible, you can still request to be enrolled on the pension scheme, and your employer can’t refuse, but they won’t enrol you automatically, and they might not be obligated to make contributions. Here is a breakdown of the new eligibility criteria:
- Earning less than £486 pcm, or £112 pw – not eligible, but can request to join a scheme (your employer will not have to make a contribution.)
- Earning between £486 and £833 pcm, or £112 to £192 pw – not eligible, but can opt in (this time, your employer will have to contribute.)
- Aged under 21, or between State Pension Age and 74, and earning over £833 pcm or £192 pw – not eligible, but can opt in.
- Aged 22 to State Pension Age and earning over £833 pcm or £192 pw – congratulations, you are eligible! You will be automatically enrolled. Remember to speak to your employer if you do not want to be involved in the pension scheme.
If you are one of the lucky few who fit the bill (which includes employees, agency workers and anyone who is self-employed for tax purposes, but works under a personal services contract), your employer will be legally obligated to enrol you on a workplace pension scheme. You can opt out if you really don’t want to be involved in your boss’s chosen scheme, but they will still have to enrol you to begin with, and then un-enrol you the following month and refund any money that you have paid in.
Your boss can’t influence your decision to be in the scheme, so if you feel pressured to leave or stay out of the pension scheme you should report it.
How much will be paid in?
A minimum percentage of your qualifying earnings will be paid into your pension scheme. Your qualifying earnings are either:
- Anything you earn before tax between £5,824 and £42,385 per year
- Your entire salary before tax
Your employer will choose how to work out your qualifying earnings, based on which type of pension scheme they choose. This will also decide how much your monthly deductions will be, as well as your employer’s contributions. Here is a breakdown of the minimum amounts that will be paid in:
- You pay – 0.8% of your qualifying earnings (rising to 4% by 2019)
- Employer pays – 1% of your qualifying earnings (rising to 3% by 2019)
- Government pays – 0.2% of your qualifying earnings (rising to 1% by 2019)
For example, if you earn £15,000 per year before tax, you will pay 0.8% of £9,176 (your qualifying earnings over £5,824) which is £73 per year (£367 by 2019), or £6 pcm (£30 by 2019). Your employer will pay £91 (£275 by 2019) and the government will pay £18 (£91 by 2019) via tax relief.
When will I be able to take my pension?
The State Pension Age (SPA) is rising every year, in correlation with life expectancy, but it is currently set at 65 for men and 62 for women. This age increases on a sliding scale, so depending on your date of birth it could be anything up to 67; although this is expected to continue rising, with teenagers today projected to keep working until they’re at least 70, according to estimations. The maximum basic State Pension for a single person is currently £115.95 per week.
The private pension age is now 55 and will rise to 57 by 2028, in line with the State Pension Age. This is when most pension schemes will allow withdrawals. At this point, you will be able to take 25% of your pot as a tax-free lump sum, and from April 2015 onwards you can now access your entire pot whenever you want it after this age, although you will pay tax on the remaining 75% as though it were income. For those under 75 years old with a life expectancy of less than a year due to serious illness, you may be able to take your whole pension pot as a tax-free lump sum, but if you’re over 75 you’ll still pay 45% tax on it.
So, now you’re all up-to-date with the changes to Auto Enrolment and, if you’re an employer, you can make sure your business has a suitable scheme in place for your eligible employees. Go check your staging date, and leave us a comment if you have any questions!
Knowles Warwick have a pension solution available to businesses that are yet to choose a scheme, get in touch to discuss your options and see if it could be the right choice for your business.
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Collective Defined Contribution Pensions
Universal Credit: What You Need to Know