‘What is automatic enrolment?’ is a commonly asked question. Despite coming into play over two years ago, many are unaware of what exactly it means. If you’ve not taken on any employees yet, you may think there’s no need to learn about it. But being in the know will ensure you meet legal requirements, and understand the ins and outs of pensions.
To bring you up to speed, we’ve put together everything you’ll need to know about automatic enrolment.
What is automatic enrolment?
Quite simply, it’s a government initiative that makes it compulsory for employers to enrol employees into a pension scheme. The purpose is to assist as many people as possible into saving for retirement. Previously there was no obligation for employers to offer a pension scheme; it was at their discretion whether to provide this benefit or not.
Are there any businesses where automatic enrolment isn’t required?
Whilst the majority of employers will need to enrol employees, there are a few exceptions. If you’re a limited company where you’re both the director and an employee, you wouldn’t be required to opt in. Members of the armed forces are also exempt. If you think there may be a reason why your business wouldn’t need to enrol an employee, then you can seek guidance from The Pensions Regulator.
Which employees are eligible for automatic enrolment?
Whether an employee is eligible or not relies upon a few criteria. They’ll need to be aged 22 or over, but below State Pension age (this depends on their gender and date of birth, and could change in the future). It’s also necessary that they earn an annual salary of at least £10,000 (or £833 per month/£192 per week), and are classed as ‘normally’ working in the UK.
What if employees don’t want to be automatically enrolled?
The laws around automatic enrolment mean that staff who meet the criteria must be put into a scheme. However, they can then choose to opt out of it at any time. For those who leave within one month, the contributions will be refunded. Even so, the employer is legally required to opt them in every three years. If any employees are ineligible, they can request to be enrolled and it’s up to the employer whether to pay into it or not.
Which pension scheme do employers need to use?
This is completely up to the employer, and so will depend upon the requirements of your business. There’s the government-backed scheme (‘National Employment Savings Trust’), though this won’t accept transfers from other pension schemes. The majority of others do, which may be beneficial to future employees whose previous company provided a pension via a different scheme.
What does the employer need to pay?
There are minimum contributions to be made. From 6 April 2018 to 4 April 2019, employers are required to make a minimum contribution of 2% and employees 3% (for a total of 5%). From 6 April 2019 onwards, the minimum contribution of employers will increase to 3%, and employees to 5% (8% in total). The government gives tax relief on contributions, helping to top up the pension pot. Employers can also choose to offer higher contributions if they so wish.
Can the self-employed receive a pension?
The self-employed are entitled to the state pension, but you can also opt into a pension scheme of your choosing. You won’t have an employer making contributions and dealing with the deductions, but you may receive certain tax breaks.
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