What you should know about pensions auto-enrolment

The government’s plan to implement a qualifying workplace pension scheme (QWPS) has already begun and will continue to be introduced over the next five years. We’ve partnered with financial advisory firm Smith & Williamson, in order to provide you with a summary of the details you need to know as an employer.

What is it?

Smith & Williamson states: “auto-enrolment is considered to be the simplest way to quickly get more employed people to save for their retirement.”
As it’s mandatory for every employer, you have a duty to automatically enrol all your eligible employees to a workplace pension, who can then choose to opt out if they wish. This means you will be contributing to all eligible employees’ pensions who wish to be a part of the scheme.
Eligible employees include those:
  • Aged between 22 and state pension age
  • Earning over £8,105 (this amount is subject to change each year)
  • Younger than 22 or earning less than the trigger salary, but request to be part of the scheme
Employees will contribute a small percentage of their pay to their pensions, which will then be more than matched by an employer contribution.

How will it work?

As well as a staggered implementation over the next five years, the contribution percentages will change after 2017, here’s how it will work:
Dates Minumum employer contribution Minimum total contribution
Now - 30 Septmber 2017 1% 2%
October 2017 - 30 September 2018 2% 5%
October 2018 onwards 3% 8%

Minimum total contributions include tax relief granted by the government.
Auto-enrolment into a workplace pension scheme will mean a significant rise in UK workers contributing to their pensions. In a report conducted by CIPD, they predicted the overall percentage of those in a workplace pension could increase from 52% to 82%.

How does it affect you?

Even if you currently have a workplace pension scheme in place, you may have to change it to make sure it complies with the new regulations.
An organisation’s start date is determined by its size, dictated by number of employees on payroll. The process began in October 2012, starting with companies with over 120,000 employees on their UK payrolls, and will end in 2017.

What should you do now?

Implementing the scheme is one thing, but it’s important to take the time to read and understand all the new legislation. Below are some considerations for you to start planning for:
  • You’re required to inform all employees about the automatic enrolment process and what being part of a QWPS will mean for them
  • You must automatically enrol every eligible employee
  • You’ll only need to make contributions for those employees who choose to stay in the scheme
  • It is possible to postpone the auto enrolment process by up to three months, but your employees do have the right to opt in during this time and benefit from the employer contribution. Employers may choose the postponement option for employees such as new starters.