The law on workplace pensions has changed. Every employer with at least 1 member of staff must automatically enrol those are eligible into a workplace pension scheme and contribute towards it.
A new law means that 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
Each employer is allocated a staging date from when they are required to comply with the new pension regulations, with dates being based on the number of employees in the employer’s PAYE scheme as at 1 April 2012. Staging dates are as follows:
> More than 50 employees by 1 April 2015
> Fewer than 50 employees between 1 June 2015 and 1 April 2017
> New employers commencing after 1 April 2012: between 1 May 2017 and 1 February 2018
Eligible jobholders = These workers are eligible for automatic enrolment, and are those workers aged between 22 and the state pension age who earn more than the income tax personal allowance.
Non-eligible jobholders = These workers are not eligible for automatic enrolment, but can choose to opt in. This category effectively includes all workers aged between 16 and 75 who earn more than the NIC lower earnings threshold of £5,772 and who are not eligible jobholders.
Entitled workers = These workers are entitled to join a pension scheme, and are those workers aged between 16 and 75 that earn below the lower earnings threshold.
Each employer with one or more worker has to register with The Pensions Regulator in order to show how they have complied with their duties.
Earnings: In order to include as many people as possible and also to maximise pension saving, the definition of earnings is based on total pay. As well as salary and wages, it also includes commission, bonuses, overtime, statutory sick pay and statutory maternity pay.
Automatic Enrolment & Opting Out:
Workers have to be enrolled from their automatic enrolment date. This is the first date the worker meets all the criteria to be an eligible jobholder for example, the employer’s staging date, the date an employee joins, or an employee’s 22nd birthday. The employer then has a one-month window in which automatic enrolment must be completed.
Although it is compulsory for the employer to automatically enrol eligible jobholders, it is not compulsory for the jobholder to remain a member of the pension scheme. Jobholders have a one-month window in which they can opt out of membership by giving an opt-out notice to the employer.
Employers that previously did not have pension provision for their employees will now have to have an automatic enrolment scheme in place into which eligible jobholders can be enrolled. There are essentially 3 alternatives:
> Provide an occupational pension scheme – which can either be defined contribution or defined benefit
> Use a personal pension scheme
> Use the National Employment Savings Trust (NEST). This is a low cost scheme that has been established by the Government to ensure that all employers have access to a pension provider.
Unless a defined benefit occupational pension scheme is provided, the minimum total pension scheme contributions must be at least 8% of a jobholder’s earnings, of which the employer’s contributions must be at least 3%. Employee pension contributions qualify for income tax relief, so for an employee paying tax at the basic rate the 8% of pension scheme contributions will typically be made up as follows:
> Employer 3%
> Employee 4%
> Tax relief 1% (5% at 20%)
> you put in £40
> your employer puts in £30
> you get £10 tax relief
A total of £80 goes into your pension each payday.
ACT NOW: Employers now have new automatic enrolment legal duties
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