Pension Auto-Enrolment

What is pension auto-enrolment?

Pension auto-enrolment is a system designed to encourage employees to save for retirement. Introduced in 2012, it requires employers to automatically enrol eligible employees into a workplace pension scheme.

The Pensions Regulator is responsible for ensuring that all employers comply with workplace pension law. If a business employs at least one person, it is an employer and has certain legal duties.

Key Features of Pension Auto-Enrolment

Automatic Enrolment

Eligible workers are automatically enrolled in a pension scheme by their employer when they meet certain criteria, without having to take any action themselves.

Eligibility

Employees aged 22 or older, under the state pension age, and earning at least a minimum income of £10,000 per annum are eligible.

Employee Contributions

Employees can choose to opt out if they don't want to participate in the pension scheme, but if they stay in, they will contribute a portion of their salary. The minimum contribution from employees is 5% of their earnings, although they can contribute more.

Employer Contributions

Employers are also required to contribute to the pension scheme if the employee opts in. The minimum contribution from employers is 3% of the employee's salary, though employers can contribute more.

Opting In or Out

Employees can choose to opt out of the pension scheme, but they must do so actively, and they will not receive the employer contributions if they opt out.

Automatic Re-enrolment

If an employee opts out, they can be automatically re-enrolled every 3 years, giving them another chance to participate in the pension plan.

Key Dates

The two important dates to be aware of are;

• Duties Start Date – the date that the first employee starts work. Legal duties begin on this date, pension contributions are due from the next pay day.

• Declaration of Compliance Deadline – deadline for informing the pension regulator how you have met the auto-enrolment duties. This is done by completing an online “declaration of compliance” form. The pensions regulator will be in contact with information of the deadline.

Steps to setting up Pension Auto-Enrolment

• Choose a pension provider – the pension scheme must be set up for auto-enrolment, independently reviewed or regulated by the Financial Conduct Authority.

• Work out which employees will need to be included in the pension scheme - write to all staff individually explaining how pension auto-enrolment applies to them, this must be done with six weeks of enrolment.

• Declare auto-enrolment compliance online with the pensions regulator - this must be completed within six months.

Ongoing Duties

• Assess any new employees to check if they meet the criteria to be put into a pension scheme.

• Monitor the ages and earnings of your existing employees every time you pay them to see if they need to be put into a pension scheme.

• Pay at least the minimum contribution levels into their pension scheme (typically 5%).

• Process requests to join and leave the pension scheme.

• Keep accurate pension records.

For further guidance and support on pension auto-enrolment contact will@matrixaccountancyservices.com or call 01788 486065.