By Lyndsey Hall
If your employer hasn’t adopted auto enrolment yet, chances are, they soon will.
On April 1st 2014, all businesses with 160 or more employees will have to offer a workplace pension, and all staff must be auto-enrolled. From April 2017, it will become compulsory for all businesses with employees, no matter how few, to enrol them in a workplace pension scheme, whether they like it or not. To find out the staging date for your business, grab your PAYE reference and go here.
As an employee, you can choose to opt-out, but your employer will be legally required to enrol you on a scheme – if you do not wish to participate in the scheme your employer will have to un-enrol you the following month and refund any money you’ve paid in up to that point.
Who will be effected?
There are some exclusions to who will be auto-enrolled:
- You must be between 22 and State Pension age
- You must earn at least £9,440 per year
- You must work in the UK
If you don’t meet these requirements, your employer won’t be obligated to enrol you, but you will still be able to opt in by choice. Employers are not allowed to refuse an employee participation in the scheme, but they won’t be expected to make contributions if you earn:
- £473 or less per month
- £109 or less per week
- £436 or less per 4 weeks
In addition, agency workers who meet the above requirements will also have to be included in the scheme, as well as anyone who is self-employed for tax purposes, but works under a personal services contract. Directors are not usually included in the scheme, unless they are employed by a company under a contract of employment.
How much will be paid in?
Once you’re enrolled on a scheme of your employer’s choice, they will have to pay at least the minimum amount due; which depends upon the specific scheme they have opted for, as well as your income. The amount due will be a percentage of your ‘qualifying earnings’, which will be either:
- The amount you earn before tax, between £5,668 and £41,450 per year
- Your entire salary or wage before tax
Your employer will also get to choose how they work out your qualifying earnings. If you’d like to know a bit more about the contributions, and how they could change over the next few years, check out the Government’s page on workplace pensions.
Why should I take part?
Whilst participating in a workplace pension scheme will reduce your take-home pay, it could also mean that you become eligible for tax credits or income-related benefits, or that your entitlement increases. Plus, it could reduce the amount you pay in student loan repayments, so, aside from the obvious positive of having a pension in place, it could benefit you financially in the short term too.
Your employer might also offer ‘salary sacrifice’ as a way of paying into your pension, meaning you give up part of your salary and pay less tax and National Insurance.
What if I want to join the scheme later?
If you opt out of your employer’s scheme and then change your mind, don’t panic; you will be given the option to enrol on the scheme once a year, and, if you are still eligible, you will be automatically re-enrolled every three years. Obviously, if you still don’t want to take part you can simply un-enrol again.
What if my employer tells me I shouldn’t bother?
The Government have also set up a Pensions Regulator, for anyone who believes that their employer is acting unfairly regarding their workplace pension scheme. Employers are not allowed to encourage employees to opt out of the scheme, or unfairly discriminate against those who take part, nor are they allowed to suggest someone who opts out is more likely to get the job. If you feel that your employer is contravening any of these rules, get in touch with the Regulator.
If you need any advice or assistance during the transition to Auto Enrolment, speak to your adviser or check out the Pensions Regulator website.
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