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The next steps in Auto-Enrolment

Posted on: 5th Feb 2018 by: CamOuse Financial Management Limited

A recent statement from the government has announced plans to extend the automatic enrolment scheme so that it applies to all workers aged 18 or over by the mid 2020s. Currently, the scheme ensures that workers aged 22 or older and who earn £10,000 or more, are enrolled in a workplace pension by their employer, unless they opt out. The plans to extend the scheme mean that approximately 900,000 more young people will be affected.

Prior to this proposed change, the amount of workers’ earnings being put into their pension is set to increase from the current 2% contribution (made up of 0.8% from the worker, 1% from the employer and 0.2% from the government as tax relief) to 5% in April this year (2.4% worker, 2% employer, 0.6% tax relief) and again in April 2019 to 8% (4% worker, 3% employer, 1% tax relief). These changes will apply to anyone who employs even one person, including nannies and carers, if they are over 22 and earn more than £833 per month, as the grace period allowed for employers to enrol their employees ends at the beginning of February 2018.

Plans to lower the starting age to 18 have received a mixed response. Former pensions minister, Steve Webb, welcomed the change, but described the pace at which it was being made as ‘shockingly lethargic’, as delaying the change until the mid 2020s ‘risks leaving a whole generation of workers behind.’

Other changes to auto-enrolment include a proposal to calculate contributions of all earnings up to £45,000, as opposed to the current system which calculates them as a proportion of earnings between £5,876 and £45,000, an annual review of trigger points and contribution levels and carrying out further research into how technology can be used to encourage self-employed workers to put into a pension. It has been calculated that the proposals will cost employers an additional £1.4 billion every year, with the government providing £600 million more in tax annually.

Whilst the change to calculate from the first pound of earnings will help those with multiple jobs, there has been some criticism that it could be detrimental to small businesses. The Federation of Small Businesses has found that it could mean an additional £180 per employee each year being paid by these businesses by 2019.

Tags: Auto-Enrolment, Pension,


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CamOuse Financial Management is authorised and regulated by the Financial Conduct Authority.

None of the information contained in this website should be considered as personal recommendation and is for information only. Should you wish to make a financial transaction we recommend that you take personal financial advice after a thorough review of your personal and financial circumstances.

The information contained within the website is subject to the UK regulatory regime and is therefore primarily targets at customers in the UK.

Registered address: Unit 111, Lancaster Way Business Park, Ely, Cambridgeshire, CB6 3NX

Registered in England and Wales. Registered No: 5662116.

Peninsula: Accredited Standard

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

Aged between 16 – 74 with qualifying earnings between lower threshold and the Auto Enrolment earnings trigger
 
Aged between 16 -21 or SPA – 74 with qualifying earnings over Auto Enrolment earnings threshold

Entitled

Aged between 16 -74 with earnings below the qualifying earnings lower threshold

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

Qualifying Earnings lower threshold

£5,772

Qualifying Earnings upper threshold

£41,865

Automatic Enrolment earnings trigger

£10,000

Minimum contribution level options:

8% of Qualifying Earnings of which

3% is employer's (starting at 1%)

9% of Basic Salary of which

4% is employer's (starting at 2%)

8% of Basic Salary of which

3% is employer's (starting at 1%)

(Where basic salary is at least 85% of total earnings)

7% of gross earnings of which

3% is employer's (starting at 1%)

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.