Arguably the largest shake up to the pension system is currently well under way. Auto Enrolment (AE) is the requirement for employers to ensure that their workers be automatically enrolled into a workplace pension scheme. The process is designed to ensure that workers plan ahead for their retirement – and presumably will, one day, partially or fully replace the state pension system. Enrolled workers who do not opt out must contribute a percentage of their gross salary to their pension pot. In addition, the employer must also contribute into the worker’s pension pot.
Who is automatically enrolled?
The following gives a summary of the main types of worker and the employer’s AE responsibility in respect of them:
|Category of Worker||Worker Criteria||Automatically Enrol?||Opt-Out Period?|
|Automatically enrolled / eligible workers||Aged between 22 & State Pension age with earnings > £10,000 for 2015/16 tax year||Yes||Yes|
|Opt in / non-eligible job holders||
Aged between 16 and 75 earning between £5,824 and £10,000 for 2015/16 tax year
Aged between 16 and 22, or between State Pension age and 75 earning > £10,000 for 2015/16 tax year
|No. Only if they ask to join (employee & employer contributions required)||Yes|
|Workers without qualifying earnings / entitled workers||Aged between 16 and 75 earning < £5,824 for 2015/16 tax year
|No. Only if they ask to join (only employee contributions required)||No|
Can the worker opt out?
Yes. Following on from the date of their automatic enrolment, individual workers have one month in which to decide whether they want to opt out of the workplace pension scheme. It must be noted that the employer cannot force or ask their workers to opt out of Auto Enrolment.
When does the process start?
For most of our clients the process starts now. You should already have received correspondence from The Pensions Regulator which requests that you provide them with a point of contact within your business. The Pensions Regulator will send all future correspondence to the nominated person.
Each employer is given a ‘Staging Date’ depending on the size of the business. It is from this date that the employer must start to calculate and deduct pension contribution from the workers, before paying them over to the pension scheme provider.
Before the staging date, the employer must ensure that a substantial amount of administration is taken care of, including:
• Choosing a pension scheme provider
• Setting up the pension scheme
• Identifying eligible workers
• Communication with the workers
Further details are given below.
How much money must I contribute into the workplace pension scheme?
Both the worker and the employer must contribute into the workplace pension scheme in most instances, at the following percentage rates (of Gross Pay):
|Date From||Employer Contribution||Employee Contribution|
|Commencement||1%||0.8% (1% incl tax relief)|
|April 2018||2%||2.4% (3% incl tax relief)|
|April 2019||3%||4% (5% incl tax relief)|
What do I have to do?
There are various steps that need to be completed in order to comply with the Auto Enrolment legislation. The Pensions Regulator Website provides a walkthrough of the steps involved, summarised as follows:
1. Nominate a point of contact – Nominate a point of contact within your business (usually a Director/Owner)
2. Choose a pension scheme – e-ccountant are unable to give investment advice regarding choosing a pension scheme provider. However, we do work with an Independent Financial Adviser who will be able to guide you depending on your requirements. Please call us on 0203 3226630 for more details. The Pensions Regulator also provides assistance – click here.
3. Work out who to put into the pension scheme (on the staging date) – Most workers must be enrolled into the AE system, even if they then decide to opt out. See the section ‘Who is automatically enrolled?’ above for more details.
4. Write to your staff (within 6 weeks after staging date) – It is important that you keep your workers informed of the AE process. Template letters to workers can be found here.
5. Declare your compliance (within 5 months after staging date) – Once everything is setup, you must inform The Pensions Regulator.
It is fairly common in small Limited Companies for the Directors to be the only employees. Often, it is tax efficient for Director’s, who are also shareholders, to process a small salary through a PAYE scheme.
If any of the following criteria apply, then you will not have any responsibilities under Auto Enrolment:
• You are the sole Director
• There are two or more Directors, none of whom have a contract of employment in place
• There are two or more Directors, with only one of whom have a contract of employment in place
• Any of the above, as well as having other employees that earn less than £10,000 per annum (current earnings trigger for auto enrolment). In this situation, you must still give the low earner(s) information on their right to opt in to a workplace pension scheme
If any of the above do apply then you should still inform The Pensions Regulator that you have no formal responsibilities under AE when nominating a point of contact.
How do e-ccountant help?
We are writing to all clients to inform them of their AE responsibilities, including details of their staging date. We will also provide a fixed-fee quotation for e-ccountant to deal with the entire AE process, including the initial setup of the workplace pension scheme, evaluation of the workforce in terms of AE responsibilities and ongoing pension deductions calculations through the payroll system.
If you would like to discuss Auto Enrolment please do contact us on 0203 3226630.