The scope of the new scheme is huge. Auto-enrolment doesn’t only apply to businesses — it applies to every employer, even if you employ just one cleaner or nanny and deduct income tax and NI from their wages.
For many employers, automatic enrolment means having more responsibility than before. You now have to set up and manage a workplace pension scheme, enrol eligible workers, and pay at least 1% of their salary into it. Thankfully there’s lots of help around, like this page.
When does pension auto-enrolment start?
For large organisations, automatic enrolment started back in 2012. But a staged roll-out means the new rules won’t apply to every employer until 2018. The auto-enrolment timetable, by company size and incorporation date, is:
- 30 or more eligible workers: auto-enrolment has already started
- Less than 30: 1 Jan 2016 to 1 Apr 2017
- Employers without PAYE schemes: 1 Apr 2017
- Companies and individuals that became employers between Apr 2012 and Sep 2017: various dates from May 2017 to Feb 2018
- New employers from Oct 2017 have an immediate duty
Which workers are eligible for auto-enrolment?
It isn’t just employees who are eligible for the new workplace pension schemes. Everyone who works for you, whether they have an employment contract or a personal contract to work for you (i.e. they aren’t working for you as part of their own business), is eligible. They must also meet certain other criteria.
You must automatically enrol all of your workers who:
- Are aged between 22 and the state pension age
- Earn at least £10,000 per year in their job with you
- Work in the UK
…And which have a right to opt in?
The workers defined above aren’t the only ones with a right to join your workplace pension scheme, though. Workers are also legally entitled to opt in if they:
- Are aged from 16-74
- Earn less than £5,824 per year
- Work in the UK
Setting up a workplace pension for auto-enrolment
If you’ve determined that you’re an employer of workers eligible for auto-enrolment, you’ll need to start thinking about setting up a workplace pension scheme.
You can use your existing pension scheme for auto-enrolment, provided it meets the qualifying criteria. The key criterion is minimum contribution: you must pay in 1.0% of scheme members’ qualifying earnings until at least 6 April 2018. (The percentage could rise to 2.0% or 3.0% after that date, depending on government decisions.) If your current scheme doesn’t meet the criteria, you can amend it.
Alternatively, you could set up a new ‘defined benefit’ or ‘defined contribution’ scheme or use the public ‘NEST’ scheme. The majority of companies with 1-4 eligible workers will have no setup costs (source: The Pensions Regulator). Larger organisations may have setup costs including:
- The cost of research and professional advice
- Administration costs, such as setting up new payroll systems
- The cost of setting up the pension scheme
- Ongoing pension contributions
Enrolling and re-enrolling workers
Finally, having put in place your new workplace pension scheme, you need to automatically enrol all eligible workers. However, there are several other rules you need to be aware of.
- Workers have the right to leave. You must repay their contributions within a month of them leaving.
- Workers who’ve left have the right to re-join once per year
- You must automatically re-enrol workers who’ve left once every three years
- You must not encourage workers to opt out, or forcibly opt them out