The auto-enrolments pensions scheme has been introduced to help workers save for their retirement as the ageing population places increasing pressure on government pension provisions. Everyone in the UK workforce will eventually be affected.
Everyone aged between 22 and the state pension age who is in work, earns over £8,105 annually (this figure to be reviewed every year) and who is not involved in a workplace pension scheme will be affected automatically.
Others not in this group can opt to join the scheme if they are aged between 16 and 75. Employers will be required to enrol everyone in this category if they ask and, if the individual earns more than £5,564 a year, must put in a minimum contribution. Those in this age group earning less than this amount may also be enrolled but employers will not be required to make a contribution.
In the early stages, the total minimum contribution will be 2% of the worker’s gross pay, of which the employer will pay half. By October 2018, however, the minimum contribution will rise to 8% of gross pay, of which the worker will pay 3%, the employer will pay 4% and the remaining 1% will come from tax relief. Currently these percentages will be applied only to annual earnings over a minimum of £5,564 to a maximum of £42,475.
The scheme is being introduced gradually and began in October 2012 with the largest companies – those with over 120,000 employees – joining first. By April 2017 all companies will be included.
While the government hopes that making employers contribute and offering tax incentives will encourage workers to stay in the scheme, there will be no compulsion. Those who feel that they cannot afford it, prefer to make other arrangements or simply calculate that it makes no financial sense for them (those already close to retirement, for example) will be free to opt out if they wish without financial penalty. Within one month, they simply have to fill in an ‘opt out notice’ and submit it to their employer; they will be withdrawn from the scheme and all contributions made will be refunded.
Employers, however, are barred from offering incentives, like higher wages, to encourage workers to opt out of the scheme. Nor are they allowed to refuse to enrol staff. In both instances, they will face stiff penalties – up to £10,000 a day for a company with over 500 employees that does not comply with the Pensions Regulator’s requests to enrol workers.
More detailed information on auto-enrolment is available from the Department for Work and Pensions, the Pensions Regulator and the National Employment Savings Trust. Full details regarding compliance, contributions and expected payouts are available so that everyone knows exactly where they stand.
My name is Richard Deeley and I am a PR consultant for Randstad Sales. I have a good understanding of how this new legislation was going to affect people’s lives across the UK so I thought it would be good to share my thoughts.