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Pension Automatic Enrolment (PAE)

Under the Pensions Act 2008, every employer in the UK must enrol certain staff into a workplace pension and contribute towards it. This is called ‘automatic enrolment’.

Overview

Employers are required to enrol their eligible workers into a workplace pension if they are not already in one. This will enable people to save to have an income other than their state pension when they retire.

Workers’ pensions will be made up of their contributions, employers’ contributions and tax relief and will be a percentage of the qualifying earnings. Employers can choose how to work out the qualifying earnings which can be either:

  • the amount a worker earns before tax between £6,032 and £46,350 a year
  • the entire wage before tax.

Employers will be given a date from The Pensions Regulator when their automatic enrolment duties come into effect. This is called a staging date, and is set in law.

Employers must enrol workers who will:

  • be at least 22 years old
  • not have reached state pension age
  • earn at least £10,000 per year
  • work, or normally work, in the UK.

If an employer has any workers who fall outside the criteria above they don’t have to enrol them into the pension scheme unless they ask to join.

In some circumstances an employer doesn’t have to automatically enrol a worker. For example:

  • if the worker has given notice to terminate their employment
  • if a worker has already taken a pension arranged through their employer
  • if the worker is from another EU member state and are in an EU cross-border pension scheme.
Employers and workplace pensions – key considerations

Employers should:

  • make sure they know what to do and by when – even if they only employ one member of staff
  • work out the costs which may be involved in terms of time and money – it may be less than they think
  • decide who will complete the tasks that need to be undertaken. While employers can carry out the automatic enrolment tasks themselves, they may choose to ask a business adviser for extra support. Employers should make sure they understand and agree who will carry out each task that they are doing so that nothing is missed
  • nominate a contact. This is the person The Pensions Regulator will send communications to about what to do and when.
Employer’s legal duties

By 2018 all employers must provide a workplace pension scheme.

Employers must pay at least the legal minimum contribution, which is currently set at 1% of a worker’s qualifying earnings. However, they may decide to pay more if they wish.

Employers must also:

  • put those staff who meet the age and earnings criteria into a pension scheme that qualifies for automatic enrolment, and pay into it
  • write to each member of staff (whether or not they meet the criteria to be put into a pension scheme) to tell them how automatic enrolment applies to them
  • tell The Pensions Regulator how the legal duties will be met by completing the declaration of compliance. This is a legal requirement which must be completed and submitted to The Pensions Regulator within five months of your duties start date
  • carry out ongoing duties – every time staff are paid (including new starters), employers must monitor their age and earnings to see if they need to be put into a pension and how much should be paid in. There is also a need to manage requests to join or leave your scheme.
Worker’s right to opt-out

Workers may choose to leave or opt-out of the pension scheme at any time by signing an opt-out form. If any worker opts-out within a month of joining the scheme any money paid in will be paid back to them. If opting out any later then it will depend on the pension scheme’s rules, normally this will mean it stays in the pension until the worker retires.

The Pensions Regulator

The Pensions Regulator is responsible for ensuring that all employers comply with workplace pension law. It’s important that employers understand what they will need to do and the date that the law will apply to them. The Pensions Regulator has guidance and support at www.thepensionsregulator.gov.uk/employers which will help employers comply with their legal duties on time.

An employee is eligible for auto-enrolment if all of the following conditions apply to them:

  • At least 22 years old
  • Not yet at State Pension age (this differs for men and women you can check the relevant State Pension Age for employees using the Gov.uk site)
  • Earn at least £10,000 per year (for the 2017/18 and 2018/19 tax years). This threshold is set by the Department for Work and Pensions and may increase each year. The Pensions Regulator publishes earnings threshold information on their website)
  • Normally working in the UK under a contract of employment.
How to see if your employees need to be auto-enrolled
Age
Monthly earnings From age 16 to 21 From age 22 to SPA* From SPA* to age 74
£481 and below Has right to join a pension scheme but does not need to be automatically enrolled
between £482 and £833 Has a right to opt-in to a pension scheme but does not need to be automatically enrolled
Over £833 Has a right to opt-in to a pension scheme but does not need to be automatically enrolled. Must be automatically enrolled in to a pension scheme Has a right to opt-in to a pension scheme but does not need to be automatically enrolled.

*SPA – State Pension Age – this differs for men and women you can check the relevant State Pension Age for employees using the Gov.uk site.

What are the minimum employee and employer contributions to an auto-enrolment pension scheme?
Tax Year* Employer minimum contribution Employee minimum contribution Total minimum contribution
2017/18 2% 3% 5%
2018/19 3% 5% 8%

* Tax year runs from 6th April to 5th April

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