Can I afford to retire?

Understanding the true cost to your business

Pension arrangements must be available for all employees. There are three categories of employee:

Eligible

Aged between 22 and State Pension Age (SPA) with qualifying earnings over the Auto Enrolment earnings trigger

Non-eligible

Entitled

Important Notes

1. Eligible jobholders must be auto-enrolled
2. Non-eligible jobholders are allowed to be auto-enrolled if they want to
3. Entitled workers are entitled to join a pension scheme, but the employer doesn't have to contribute

Minimum contribution level options:

Pay reference period

Essentially the frequency that the jobholder is paid e.g. monthly, weekly etc. but with reference to the tax month, week etc. therefore it may not be the same as the payroll period.

Deduction and payment of contributions

It is the employer who is responsible to calculate, deduct and pay all contributions to the AE scheme. NOTE – the first and last contributions are likely to be for less than a full pay reference period and should be adjusted accordingly.

Payroll services

It can be seen that it is very important that the payroll system synchronises with the AE scheme otherwise the employer will not be carrying out all requirements and then penalties will be incurred.

Staging date

Based on the employer’s payroll size as at 1 April 2012 and can be found at www.thepensionsregulator.gov.uk/employers using your PAYE reference. The Qualifying Workplace Pension Scheme must be registered with The Pensions Regulator within 4 months of the staging date.

Compliance and communication

Postponement

Auto-Enrolment can be postponed for up to 3 months:

• For current eligible employees
• For workers that meet the criteria in the future for the first time e.g. avoid joining temporary or lower paid workers

Opt-Outs

All eligible employees must be auto-enrolled, but can, with the correct notification, opt-out within one month of joining the scheme and be treated as never having joined. They can opt back in and will automatically be auto-enrolled every 3 years in any case!

Communication

There is a wide range of information that must be provided to all employees at certain times, such as:

• The date auto-enrolment took place for eligible jobholders
• That non-eligible jobholders have the statutory right to opt in
• Entitled workers have the right to request the employer to enrol them into a pension scheme

Salary sacrifice

Contributions can be paid by effectively reducing salary, which saves on NI contributions, but employee must choose to do this – they cannot be forced, so a contractual variation will need to be implemented.

Default investment fund

Investment Options

All eligible employees will be automatically invested into a default investment fund, which is a balanced risk fund that is “life styled” to account for the employees approach to retirement. They also have the option to invest in a wide range of funds of their choosing.