Since October 2012 the Pensions Act 2008 has required employers to automatically enrol eligible workers onto a workplace pension scheme. This obligation currently only applies to the largest employers but will eventually be rolled out to all employers. The auto-enrolment system represents a major change to the UK pension system and means that employees will no longer have to actively sign up to an employer's pension scheme, they will be automatically enrolled. Requirements on employers Employers are required by law to enrol all eligible workers into a workplace pension scheme and make contributions to it. The date by which employers must enrol eligible workers depends on the size of the employer.
- Large employers (250 or more workers) will have to start automatically enrolling their workers from October 2012 to February 2014;
- Medium employers (50- 249 workers) will have to start automatically enrolling their workers from April 2014 to April 2015;
- Small employers (49 or less workers) will have to start automatically enrolling their workers from June 2015 to April 2017; and
- New employers (established after April 2012) will have to start automatically enrolling their workers from May 2017 to February 2018.
(Source: Department of Work & Pensions) Employers do have an opportunity to delay enrolment by up to three months generally and until 30 September 2017 for employers using Defined Benefit or Hybrid pensions schemes. Employers are also required to provide workers with information in writing at relevant times to keep them informed of how automatic enrolment will affect them. It is important to note that certain safeguards have been put in place to protect employees. These include bars on employers offering incentives for employees to opt out of a scheme, implying that a worker can only be employed if they choose to opt out and unfairly dismissing a worker for not opting out of a pension scheme. Who will be automatically enrolled? Workers who are not already enrolled in a qualifying pension scheme, are aged over 22 and under the state pension age and who earn more than an indentified earnings level (reviewed every year), will be automatically enrolled. Workers who do not meet the above criteria may still have a right to opt into a workplace pension scheme. Employer contributions Employers will have to pay a minimum percentage of a worker's earnings (up to a maximum, currently £42,475) into the scheme. This amount is added to the worker's contributions and tax relief. For example, from 1 October 2018 employees will see a minimum contribution of 8%, made up of 3% from the employer, 4% from the employee and 1% in tax relief. Opting out Although qualifying workers will be automatically enrolled they do have the right to opt out. If this is done within one month of when they become a member of the scheme any payments made into the scheme will be refunded. If employees opt out after this period any payments made may not be refunded and would remain in their pension scheme. There is the option to re-join at a later date but certain criteria apply. This article is not designed to be a detailed analysis of auto-enrolment and the above summary will not apply in certain situations or to certain types of workers. A detailed breakdown of the requirements on employers and employees can be obtained from the Department of Work and Pensions or The Pensions Regulator. If you wish to discuss how auto-enrolment will affect you or your business feel free to contact a member of the employment team at Wake Smith on 0114 266 6660.
