Automatic enrolment

The law on workplace pensions has changed. Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. This is called ‘automatic enrolment’. Whether you’re a hairdresser, an architect or employ a personal care assistant, if you employ at least one person you are an employer and you have certain legal duties. Every employer must automatically enrol workers into a workplace pension scheme if they:

  • are aged between 22 and State Pension age
  • earn more than £10,000 a year
  • work in the UK

In the past it was up to workers to decide whether they wanted to join their employer’s pension scheme. But by 2018 all employers will have to automatically enrol their eligible workers into a workplace pension scheme unless the worker opts out. As a result, many more people will be able to build up savings to help cover their retirement needs. If you are already in a workplace pension scheme you may not see any changes. If your employer doesn’t already contribute to your pension, they will have to start when they ‘automatically enrol’ every worker.

Automatic enrolment for employees

If you haven’t yet been enrolled in a scheme, your employer will tell you the exact date of it will begin automatic enrolment and whether or not you’re eligible for their scheme. There is a minimum total amount that has to be contributed by you, your employer, and the government in the form of tax relief. This total minimum contribution is currently set at 2% of your earnings (0.8% from you, 1% from your employer, and 0.2% as tax relief).  From April 2018, it will increase as follows:

  • April 2018 to March 2019: 5% of your earnings (2.4% from you, 2% from your employer, and 0.6% as tax relief)
  • From April 2019 onwards: 8% of your earnings (4% from you, 3% from your employer, and 1% as tax relief)

For most people, staying in a workplace pension is a good idea, particularly if the employer is contributing to it. Workplace pensions are a great way to save for retirement.

If you do not want to join your employer’s workplace pension scheme, you can opt out of the scheme after you have been automatically enrolled. If you opt out within one month of being automatically enrolled, you will be treated as if you had never joined the scheme, and any money that you have paid into the scheme will be refunded in full. Opting out could, however, mean losing valuable retirement benefits.

Your duties as an employer

The duties you have will depend on your own circumstances as an employer and those of your staff. While you can carry out the automatic enrolment tasks yourself, you may choose to ask for extra support. Using a Financial Adviser may be helpful if you don’t have much time or want more help to make the right choices. It is important that you understand what to do and by when as if you fail to comply with your duties, the Pensions Regulator may take enforcement action and issue a notice and / or penalty.

Set up costs
What you pay and the amount of time you spend on setting up automatic enrolment will depend of various factors, including if you use an adviser, how you run your payroll and which pension scheme you choose. There is a higher risk of paying more if you start the process late and are unprepared. Make sure you prepare early top avoid unnecessary costs.

Ongoing Costs
You will also need to pay money into the pension scheme, after you’ve put your staff into it and every time you pay them. This is known as ‘making contributions’. Depending on your circumstances, you may also have ongoing costs for payroll, pension scheme and business advice in addition to, or instead of, set up costs. These will vary and can be annual or monthly administration charges. You should take these costs into account when you are making decisions.

Source: Pensions Advisory Service/MAS – September 17