What is Auto Enrolment?
Auto Enrolment is a requirement of all employers to automatically enrol employees onto a workplace pension scheme. The new Auto Enrolment laws are to ensure employees are given an opportunity to save into a pension for their retirement.
All employers will need to:
- have a pension scheme that meets the new regulations
- auto enrol employees who meet the age and earnings criteria onto the pension scheme
- pay and deduct contributions for eligible employees
- enrol or de-enrol employees who opt-in or opt-out
The new laws were introduced in 2012 and are being phased in over 7 years by staggering the ‘staging dates’ and gradually increasing the ‘minimum contributions’.
Who does Auto Enrolment apply to?
The Auto Enrolment regulations apply to all employers except some director-only companies. Eligible employees (see table below) are automatically enrolled into a qualifying workplace pension scheme, if they aren’t already in one, and if they don’t opt out (see below).
Non-eligible employees and Entitled workers also have the right to opt in i.e. ask their employer to enrol them into an Auto Enrolment pension scheme. Depending on the employee age and income, employers also make contributions to this pension scheme, adding to the contributions made by the employee.
|16-21||22 – State pension age||State pension age – 74|
|Less than or equal to £5,824||<-----------Entitled worker---------->|
|Over £5,824 and up to £10,000||<----------Non-eligible jobholder---------->|
|£10,000+||Non-eligible jobholder||Eligible jobholder||Non-eligible jobholder|
How much will Auto Enrolment cost?
The minimum contributions are calculated using the percentages shown in the table below which are applied to an employee’s qualifying earnings. Qualifying earnings for the year ending 5th April 2017 are earnings between £5,824 and £43,000.
As long as the minimum employer’s contribution and the minimum total contribution are both met, the mix and rates of contributions can be different to those stated below. For example, an employer may want to pay the full total minimum contribution (or more) so that the employee isn’t required to pay any. Or the employee may want to pay more than the minimum.
|Date||Employer Minimum Contribution||Employee Minimum Contribution#|
|Employer’s staging date to 5 April 2018||1%||0.8% (*1.0%)|
|6 April 2018 – 5 April 2019||2%||2.4% (*3.0%)|
|6 April 2019 onwards||3%||4.0% (*5%)|
|# Assuming employer only pays their minimum contribution
* Tax relief adds one quarter of the employee’s contribution if applicable
When do I have to start Auto Enrolment?
The date when your auto enrolment duties come into force is called your staging date. Your staging date is the deadline for having a qualifying pension scheme for your employees. Within 6 weeks after your staging date you must have enrolled the eligible and opted-in employees, and started contributing to the pension. Within 5 months you must declare to The Pension Regulator that you have been complying with the new requirements.
Employers will need to prepare themselves for Auto Enrolment prior to their staging date, including communicating with staff. This can take anything between six months and a year. The staging date is based on the total number of employees in your PAYE scheme at April 2012, as shown in the table below.
|Employees at April 2012||Staging dates between|
|250+||October 2012 to February 2014|
|50-249||April 14 to April 2015|
|1-49||June 2015 to 1st April 2017|
|New employers since April 2012||May 2017 to February 2018 dependent on when PAYE first paid|
Find Your Staging Date
You can click on the link below to find out your exact staging date from The Pension Regulator (TPR) website. You will need your Employer PAYE reference and either your Accounts Office reference or a a letter code TPR may have sent you. Find Your Staging Date
Earlier Staging Date
If you want to bring your staging date forward, you should notify The Pension Regulator (TPR) one calendar month before the new (earlier) staging date you choose. You can only choose your new date from one of the available dates given by TPR. For further details please click on the following link: Bring your staging date forward
You can defer or postpone the date you have to enrol employees onto your pension scheme by up to 3 months (waiting period). The staging date remains the same so you still have to have the pension scheme in place and accept opt-ins in the ‘waiting period’. Once you complete the postponement period, you cannot apply another period of postponement, even if you postpone for less than the 3 months permitted.
Informing your employees
Employers are required to inform all employees about their new pension rights and if they are postponing the enrolment duties. There are template letters available which need to be tailored and sent or emailed to a personal address.
Opting in or Out
If the employees are not automatically enrolled, they have the right to Opt In to the pension scheme. Employees who can Opt In are: aged 16-21, or state pension age to 74; earning above £10,000 a year. Or aged 16-74; Earning above £5,824 up to and including £10,000 a year.
The employee who previously opted out can also Opt In again. But if they’ve already asked to Opt In in the last 12 months and subsequently opted out or ceased membership, it’s up to employer to decide whether to enrol them.
Employees aged between 16 and 74 but earning less than £5,824 are entitles to join the pension scheme but the employer does not have to contribute to their pension.
The employees who have been automatically enrolled or who have opted in have the right to opt out from the pension scheme. It is illegal for employers to induce them to do so. Once auto enrolled, employees have one calendar month duration in which they can opt out and get full refund of any contribution. This period is called ‘Opt out period’.
Declaration of compliance
Completing a Automatic Enrolment declaration of compliance (registration) is the legal requirement to submit information to the pension regulator about how you’ve complied with your employer duties. The deadline for completing your declaration of compliance is five calendar months from your staging date. For example, if your staging date is 1 November 2016, you must submit your declaration to us no later than 31 March 2017.
Paying the contributions
After employees are auto enrolled onto a pension scheme, and within 6 weeks of your staging date, you need to start calculating the minimum employer contributions. You also need to calculate your employee contributions and deduct these from their pay, from either gross or net pay depending on your pension scheme (see below). The details need to be submitted to the pension scheme, then the total contributions are either collected via direct debit or they need to be paid to your pension scheme.
Net pay arrangement
Tax relief under the net pay arrangement’ means pension contributions are taken from your pay before income tax is calculated and deducted through PAYE. This means that your pension contribution is paid before the deduction of tax but has no effect on your National Insurance contributions.
Relief at source arrangement
Tax relief at source’ means your pension contribution is taken from your pay after the deduction of tax. Your pension provider will then include tax relief calculated at the basic rate of tax (20%) as part of the total pension contribution. This means that the pension deduction you see on your payslip will not be the total amount of contribution.