Automatic enrolment is the government’s new workplace pension initiative, requiring employers of all sizes to provide a staff pension scheme and automatically enrol all eligible employees.
Launched on 1st April 2014 and extended in April 2017, auto-enrolment means that, whether you employ one; one thousand; or one hundred thousand (or even more) staff, you now need to provide a workplace pension. This is the government’s way of encouraging individuals to save into a private pension, and not rely entirely on the state pension, which is under increasing pressure due to an ageing population.
Research has shown that the state pension alone will not provide enough funds for most people to live on in their later years, and the average retirement is increasing in length, despite the government raising the state pension age steadily in line with life expectancy. The current state pension age is 66, and is expected to increase to 67 by 2028, and to 68 between 2037 and 2039.
The private pension age is now 55, and expected to rise to 57 by 2028, in line with the State Pension Age. The age at which you can draw from your private pension differs from plan to plan, so always check with your pension provider.
Auto-enrolment pensions eligibility criteria
In order to be eligible for auto-enrolment, there are a few criteria employees must meet:
- Aged 22 to State Pension Age and earning over £833 pcm or £192 pw – eligible and must be automatically enrolled.
- Aged under 21, or between State Pension Age and 74, and earning over £833 pcm or £192 pw – not eligible for auto-enrolment, but can request to be enrolled.
- Earning between £486 and £833 pcm, or £112 to £192 pw – not eligible for auto-enrolment, but can opt in and your employer will be obliged to contribute.
- Earning less than £486 pcm or £112 pw – not eligible, but can opt in, however your employer is not obligated to contribute.
If you’re 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, however they will still have to enrol you to begin with, and then un-enrol you the following month and refund any money you have paid in. It’s the government’s way of ensuring as many eligible individuals save into a private pension plan as possible, by making the default that you are automatically opted in and have to choose to opt out, rather than vice versa.
Automatic enrolment contributions
Pension contributions come from three places:
- Deductions from the employee’s salary;
- The employer’s contribution; and
- A government contribution in the form of tax relief.
Minimum contributions are currently set at 5% for employees and 3% for employers, with the government offering a 1% contribution via tax relief. These figures are correct as of April 2019, however they may change in the future so always check on the government’s website.
These are minimum contributions only, and your employer may offer a higher rate, or employees may choose to pay more in. It’s best to check the details of your company’s specific pension plan to be sure as they may differ.
Auto-enrolment guidance for employers
There are a variety of pension providers that cater for auto enrolment, and we could talk you through the various options and help you choose the right plan for your business. As auto-enrolment accountants, our specialist advisors will assess your requirements and explain the benefits of each plan, whilst helping you meet your auto-enrolment responsibilities.
Our workplace pensions auto-enrolment services include pensions assessment, auto-enrolment payroll, and pension plan administration services.
If you’re looking for workplace pensions auto-enrolment advice, get in touch with us today on firstname.lastname@example.org or 0114 274 7576.