What is Auto Enrolment?
‘Auto Enrolment’ is the name given to a specific piece of legislation within the Pensions Act of 2008 that came into effect in October 2012. Auto Enrolment is a government initiative that requires every employer to enrol their ‘eligible & qualifying staff’ working in the UK into a workplace pension scheme. All eligible workers will need to be automatically enrolled into a qualifying workplace pension scheme with mandatory minimum pension contributions from the employer and the employee.
Why is Auto Enrolment beneficial for you?
Auto Enrolment was created to help individuals save more for their retirement, and so far it has been a clear success. As mentioned previously, all eligible & qualifying workers legally have to be enrolled into a workplace pension by their employers. This means that you do not need to join a pension scheme yourself, it is your employer’s responsibility to do this on your behalf.
After you have been enrolled into an occupational pension scheme, your employer will also have to pay money into your pension on your behalf. Currently, the minimum statutory contributions are 3% from the employer and 5% from the employee
As with all other types of pension, you will also receive tax relief from the government on your pension contributions.
As the nation’s average life expectancy continues to rise, it is no surprise that the value of individual’s pension pots will also have to increase to accommodate this. The vast majority of people will rely on a pension to provide them with sufficient income after they retire and the most common source of pension savings is now found in workplace pensions.
“As of 2019, 77% of UK employees were members of workplace pension schemes; this is a 30% increase since auto enrolment began. This is also the highest membership rate since comparable records began in 1997.” (Office for National Statistics (www.ons.gov.uk), 4th March 2020)
What to consider as an employee?
As an employee, you have one main thing to consider; whether you choose to ‘opt out’ of your occupational scheme. It is important to understand the potential consequences opting out may have on your total pension savings. Opting out is your choice, and it will result in you being removed from your occupational pension scheme. You will not lose any benefits you have accrued up to the time of opting out however, neither you nor your employer will be required to contribute any further into your pension pot whilst you are out of the scheme.
Opting out of your occupational scheme usually lasts for a period of around 3 years, but you can choose to opt back in to the scheme after a period of 12 months. Employers must review your position at least every 3 years and if you are eligible at the time of review, your employer must automatically enrol you once again.
If you would like more information about occupational pension schemes or any other type of pension, we recommend you visit the website, ‘pensionwise.gov.uk’. The Pension Wise website works as an impartial & free government service that is simply to help pension holders learn more about their pensions. The website also offers a free appointment for any general queries you may have.
What to consider as an employer?
As an employer, you have a few more things to consider than your employees. From the moment your first member of staff starts to work for you, you are officially an employer and therefore have additional legal duties. Your legal duties for ‘auto enrolment’ begin from the first day your employee starts work. This is officially known as your ‘duties start date’. The Pensions Regulator has the task of ensuring all employers abide to the current and future workplace pension laws, with your scheme included, however small or large.
Obviously, the main obligation for employers is to ensure you have enrolled all of your eligible staff into a workplace scheme. An important point to remember; not all of your staff will need to be enrolled into a pension scheme.
What do you need to do for automatic enrolment as an employer?
It is essential to be prepared, if you are setting up a new business or you expect to hire your first staff members soon. It is important you ensure the changes required to systems are identified and all parties, including HR and payroll, fully understand what is required of them. Employers need to understand their duties associated with workplace pension law, as they could be potentially time consuming, complex to manage and costly to administer:-
Similar to Pension Wise for employees and other pension holders, we recommend employers, new and old, visit, ‘thepensionsregulator.gov.uk’. This website is also free and has a section dedicated to providing employers with information, advice & helpful tools to improve their management of workplace pensions.
Briefly put, employers are required to do the following:
- Access eligibility of all employees.
- Register with the pensions regulator.
- Ensure that their pension schemes comply with all regulations.
- Manage the enrolment process for all employees.
- Manage and update the opting in and out of employees.
- Manage contributions.
- Ensure that inducements to opt out are not offered.
- Provide regular updates and employee communications.
- Re-enrol opted out employees on a regular basis.
- Keep accurate records of all the above.