Under the Pensions Act 2008, every UK employer has a statutory duty to put forth certain members of staff into a pension scheme and contribute towards it.
How does it work?
All employers have a legal duty on the day a member of staff begins work, if they are eligible, to enrol them into a qualifying pension scheme. It applies to workers aged at least 22, but under the state pension age (SPA). However, those automatically enrolled have the option to opt out within one month.
Minimum contributions made to defined contribution, personal and some hybrid pension schemes are to be phased. In April 2018, contribution rates will increase from 2% to 5% overall, with 2% coming from the employer. In April 2019, they are to be revised again, with the minimum contribution rate rising to 8%, with at least 3% from employers.
|
Phase |
Duration |
Employer Minimum Contribution |
Total Contribution |
|
First Transitional Period |
To 5 April 2018 |
1% |
2% |
|
Second Transitional Period |
6 April 2018 – 5 April 2019 |
2% |
5% |
|
From April 2019 onwards |
3% |
8% |
|
What employers need to know?
All employers have a series of duties to carry out when employing a new member of staff. They must assess their employee, enrol them into a workplace pension scheme as per certain criteria, inform them and finally submit a declaration of compliance with The Pensions Regulator (TPR).
Regular checks by TPR signifies the need for employers to be aware of their duties and the law.
What are my duties?
The duties for employers are ongoing. These include making regular contribution to employee pensions, monitoring the age and earnings of staff, manage employee requests to join or leave the scheme, maintain accurate records and re-enrol staff every three years.
Communicating the increases
To ensure employers are aware of changes, letters are sent out to explain their enrolment duties, this includes future increases in contribution rates.
You have got to be in, before you can opt out
During inspections carried out across the country by The Pensions Regulator, employers allowing staff to opt out of the workplace pensions before they have been enrolled has increased. By not complying with their duties in the correct way, and potentially opting out on behalf of their staff, they risk being fined.
In order to adhere to the correct rules, employers must follow a number of steps in The Pension Regulator Duties Checker, this includes setting up a pension scheme, putting eligible staff into it, and providing correspondence to them before they decide whether to stay in or opt out.
Are you ready?
A Pensions Regulator forecast revealed that 73% of small businesses and 50% of micro businesses are expected to have pension duties in the next three years. These duties include enrolling eligible staff in a pension scheme.
Things to consider
Tax relief must be considered when choosing a pension scheme. Tax relief can be obtained from the Government in two ways: Relief at Source or Net Pay Arrangement. Relief at Source is where employers take 80% of an individual’s pension contribution from income after tax. The tax relief is then reclaimed from HMRC via the pension scheme. Net Pay Arrangement means the pension contributions are collected before income tax, meaning tax relief at the highest rate is automatic, and income tax is not paid on the contribution to the pension.
Myers Clark can help you to find the right solution for Auto-Enrolment as many of our clients have already reached their staging dates. Please contact Priya Raja-Motala on 01923 224411 or at priyar@myersclark.co.uk.