NB    I am not authorised to give financial advice and none is included in the pack.

        The pack is for guidance only and is not advice.  I accept no responsibility for anything that anything anyone does or does not do as a result of reading or using the pack, unless I have accepted instructions to advise.

A version of this pack and more AE and employment related  pension documents with explanatory footnotes (not included in the above) are available in Kelly’s Legal Precedents 21st edition with the 2015 supplement: see the link below.

http://www.lexisnexis.co.uk/store/uk/Kellys-Legal-Precedents-21st-Edition-and-CD/product

 

2       short explanation of automatic enrolment (AE) for employers and their workers

 

why and what?

The government wants to make a workplace pensions available to everyone and has introduced automatic enrolment (AE).  The Pensions Act 2008 requires all employers to enrol employees and other workers automatically into a pension scheme.  There is no exception for small employers, but there is for the low paid. 

This leaflet is written in general terms and does not deal with every detail of the law.  It explains some of the jargon and summarises what employers must do and how AE affects their employees.  The law is mostly in the Pensions Act 2008 and Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010.  More information can be obtained from the sources listed at the end of this note.

 

who?

1      AE applies to “jobholders”.  This means every person, who works ordinarily in GB for an employer under a contract, if she or he is aged at least 22 and under the state pension age and who is paid over £10,000 pa.  It does not apply to independent contractors and professional advisers.

 

when?

2      AE is being introduced in stages and started with the largest employers on 1 October 2012.  Every employer has a “staging date”.  Employers who at 1 October 2012 had thirty or fewer jobholders in its PAYE scheme as at 1 April 2012 will have staging dates from 1 June 2015 to 1 April 2017 depending mainly on the employer’s PAYE reference number.  The staging dates for employers who first pay PAYE income after 1 April 2012 and before 1 October 2017 will be later.  From 1 February 2018 AE will apply to all employers.

3      Each jobholder’s “automatic enrolment date” is day on which she or he starts employment with an employer, which has reached its staging date, if the employee meets the criteria in 1 above.  If those criteria are not met, it will be the first date on which they are met.  The employer can defer a jobholder’s automatic enrolment date for up to three months.

 

how much

4      The present rates of contribution are shown in this table.  Columns A are the rates if qualifying earnings are used to calculate the contributions.  Columns B are the rates if contributions are calculated on total earnings.

 

before October 2017

from October 2017

from October 2018

 

A

B

A

B

A

B

employer

1%

1%

2%

2%

3%

3%

employee

1%

1%

3%

3%

5%

4%

total

2%

2%

5%

5%

8%

7%

5      The default minimum contributions are based on qualifying earnings.  Qualifying earnings are the band of annual earnings from £5,824 to £42,385, which are the 2015/16 lower and upper earnings limits for national insurance contributions.  The earnings band is expected to remain linked to these limits.  There are three alternative ways of calculating earnings, of which the simplest is to pay contributions on the whole of the employee’s earnings shown in column B above.

 

voluntary membership

6      Employees aged 16 to 21 and from the state pension age to age 74 may opt into AE.  If the annual rate of pay for these people is, for the tax year 2015/16 £5,824 or over, the employer must pay contributions for them, but the employer is not required to pay contributions if the employee’s annual rate of pay is less than this amount. 

 

opting out 

7      All jobholders enrolled automatically into a pension scheme have a right to opt out, when their initial contributions will be refunded.  The opt out must be made within one month after being enrolled or, if later, being notified of being enrolled.  Employees may also end their pension scheme membership at any time in accordance with the scheme’s rules but the scheme’s rules will determine whether or not there will be a refund.  An employer must not take any act inducing a worker to give up membership of or opt out of an AE scheme.

 

existing or new alternative pension scheme

8      Jobholders who are active members of a qualifying scheme need not be enrolled automatically into a pension scheme.  Qualifying schemes must be tax registered in the UK.  A money purchase scheme, to which the employer pays contribution and the contribution rates are the same as or better than those required for AE, is a qualifying scheme.  There is also a final salary alternative which, for most small employers, is unlikely to apply.  A personal pension scheme selected by an employee can be a qualifying scheme, if the employer and employee pay the necessary contributions to it.

 

re-enrolment

9      Jobholders, who opt out or give up membership of their employer’s AE scheme or leave a qualifying scheme without joining the employer’s AE scheme, must be re-enrolled on the employer’s next automatic re-enrolment date, which, at the employer’s choice, is not more than three months before nor three months after the third anniversary of its staging and each subsequent automatic re-enrolment dater.   Re-enrolment is immediate if the cessation resulted from an act or omission by the employer or a third party  not at the jobholder’s request.

 

automatic enrolment scheme

10        There are many providers of schemes for AE.  Employers must select a suitable scheme, but there are fears that some providers may be unwilling to accept very small employers.  One scheme, which might be suitable, is the National Employment Savings Trust (“NEST”).  It was established under the Pensions Act 2008 as a low cost, trust based, occupation automatic enrolment pension scheme and has a public service obligation to accept every employer, no matter how small, which wishes to use it for AE.  There are other providers of AE schemes about which employers should take independent financial advice.  The Pension Regulator’s the guidance at the following link, states everything that matters for regulatory compliance but cannot be expected and does not attempt to address the question of actually choosing a scheme: http://www.thepensionsregulator.gov.uk/choosing-a-pension-scheme.aspx on the regulator’s website.

 

useful contacts

-      https://www.gov.uk/workplacepensions  

-      www.thepensionsregulator.gov.uk/employers/detailed-guidance.aspx

-      http://www.thepensionsregulator.gov.uk/docs/selecting-a-good-automatic-enrolment-scheme.pdf

-      http://www.nestpensions.org.uk