The Pensions Act 2008 established new duties for UK employers that started to be introduced in October 2012. This has been introduced to get more people saving for their future. The new employer duties are being introduced over 6 years, starting with the UK’s largest companies from October 2012 with all other companies being fazed in by February 2018.
Companies will have a staging date is determined by the total number of employees that were in their employ and reported under their PAYE scheme based on 1 April 2012.
Employers will have new duties in relation to everyone who is working for you who are aged between 16 and 74. Whom works in the UK and for whom you deduct tax and NIC from their wages.
Most employers will have to choose and contribute to a workplace pension scheme suitable for automatic enrolment which must meet the qualifying standards.
All employers will have to automatically enrol some workers into a workplace pension scheme and give others the option to join. The employer duties are not optional. The Pensions Regulator (TPR) will ensure employers comply or receive fines or in some case’s imprisonment.
It is the employers responsibility to assess their workforce to determine the different categories of ‘worker’.
Initially this assessment is required on the staging date, but employer duties don’t just stop once you’ve enrolled all your employees. It becomes part of your business. You must assess your employees regularly, ideally before each payroll run in order to assess for any new joiners to the pension scheme
or a change of worker categories. The various categories follow:
Eligible jobholder:
- Aged between 22 and state pension age
- Who earns between £10,000 and £42,384
- Must be automatically enrolled
- They are entitled to have employers contributions
Non-eligible jobholder:
- Aged between 16 and 75
- Annual earnings above £5,876
- as a right to ask to be opt-in to the pension
- They are entitled to have employers contributions
Entitled worker:
- Aged between 16 and 75
- Annual earnings less than £5,876
- Has a right to ask to be opt-in to the pension
- They are not entitled to have employers contributions
Qualifying earnings are between £5,876 and £45,000.00 in tax year 2017/18. The figures are reviewed every year by the government and will usually change.
Qualifying earnings are the gross annual earnings that can be used to work out what contributions an employee would make. They include salary/wages, overtime, bonus and commission as well as statutory sick, maternity, paternity or adoption pay.
The minimum contributions for auto enrolment pension schemes that both the employee and employer must contribute are being introduced gradually over time, based on a percentage of total earnings.
Staging date to 31 March 2018 – employee pays 1% employer pays 1%
1 April 2018 to 31 March 2019 – employee pays 3% employer pays 2%
1 April 2019 onwards – employee pays 5% employer pays 3%
Employees who have automatically been enrolled into the pension scheme and those with qualifying earnings who have opted in have the right to opt out. The pension scheme will state the period of time they have to do this.
The employee will need to complete an opt-out notice and give it to there employer or directly to the pension scheme.
The employer will once the opt-out notice has been received refund the contributions previously taken.
Opting out and receiving a refund of contributions made can only be done in the period of time that the pension scheme specifies.
If the employee wants to opt-out after the period is over they can do so but not get a refund. Any contributions made by the employee and employer will remain in the pension scheme.
It is the employers responsibility to ensure that the employees data is correct on the pension summary sheet and to make the payments to their pension provider for both the employee and employer contributions each month by the due date.
Should the employer need any further information The Pensions Regulator (TPR) website or pension provider will be able to advise.
Finally, as from 1 October 2017 all new employers will have auto enrolment (AE) duties as soon as their first member of staff starts work.