Are you one of the 1.8 million small business owners in the UK? If you are, we are almost certain by now as an employer, you will be aware of the need to offer an auto-enrolment pension scheme for your employees. So here's our essential guide of what you need to know:
What does auto-enrolment mean?
Automatic enrolment means most UK employers will be obliged to put in place a qualifying workplace pension scheme and automatically enrol their qualifying workers. Employers then have to make contributions to their workers’ pensions every pay period.
When does my business have to enrol?
The date you have to enrol employees onto a scheme by is determined by the size of your business. This is called your staging date.
Very large employers were the first to reach their staging date in late 2012. It’s now the turn of small businesses and micro employers.
The Pensions Regulator should write to you regularly to confirm your staging date. You can also check ahead of schedule on The Pension Regulator’s website. All you need is your PAYE reference number.
Who do I need to enrol?
Workers fit into one of three groups: eligible, entitled and non-eligible. A worker assessment will help you identify which group each of your employees fits into.
Eligible workers must be automatically enrolled and you must pay minimum contributions. They are those who:
- Aren’t already in a qualifying pension scheme at work.
- Are aged between 22 and the state pension age (the earliest age they can claim their state pension).
- Work in the UK.
- Earn at least £10,000 in a year (this figure is reviewed by the government each tax year).
Non-eligible workers can ask to be enrolled into your scheme and if they do, you must pay minimum contributions. These are UK workers who are either:
- Aged between 16 and 22 or between state pension age and 74 and earn more than £10,000 in a year, or
- Are aged between 16 and 74 and earn at least £5,824 but less than £10,000.
Entitled workers can also ask to join, although you don’t have to pay contributions for this group. Entitled workers are those aged at least 16 but under 75 who earn less than £5,824.
How much do I have to contribute?
The government has set minimum standards that employers must meet. For most employers, this means paying minimum contributions, which will start at 1% of a worker’s “qualifying earnings” and increase to 3% over the next few years. When you contribute, so do your employees.
It’s important to remember that “qualifying earnings” does not mean all of an employee’s salary, but applies to earnings over a minimum amount (currently £5,824) up to a maximum (currently £42,385). These figures apply to the 2015/16 tax year and will be reviewed every year by the government.
So for example, for someone earning £18,000 a year, the minimum percentages are calculated on the difference between £5,824 and £18,000, which is £12,176.
Of course, as an employer you can contribute more than the statutory minimum. The minimum contribution levels are intended to set a foundation for building the savings habit.
What if an employee wants to opt-out?
Employees do have the right to opt out, however, up to now most workers have chosen to stay enrolled in their workplace pension.
If a member wants to opt out – which should be done within one month of being enrolled – you must pay back any contributions taken from their pay and the pensions scheme will refund any contributions you’ve made.
After the one month opt-out period is over, members can’t opt out and get a refund, but they can stop contributing. If they do, contributions already paid, including those from their employer, will remain invested in the pension scheme.
Can I ask my workers not to join the scheme?
No! It is illegal to force or try to force a worker to opt out , employers can be fined by the regulator for doing so. This means, for example, that you can’t offer a pay rise for opting out, or threaten a pay cut for staying in the scheme.
How do I choose a pension scheme?
Choosing a scheme for your employees is an important decision and it is your responsibility as the employer to choose a scheme for your workforce.
At Inform Accounting, following discussions with several different providers, we have chosen to use True Potential as our auto-enrolment provider.
If you haven't chosen your provider yet, Inform are happy to discuss this with you further, give us a call on 0121 667 3882 or drop us an email.
Alternatively, download the True Potential guide here: