Auto enrolment is an obligation on all employers to enrol eligible jobholders in a workplace pension scheme unless they are already a member of a Qualifying Scheme. A Qualifying Scheme is either a personal pension scheme or an occupational pension scheme into which the required level of contributions are being paid and meets the charges cap of 0.75% pa for all charges including the costs of a stated default investment fund. In addition, an auto enrolment scheme is a Qualifying Scheme that:
- Results in the member not having to select their own fund choice
- Has no requirement for the member to provide information
- Has no barrier to entry.
The date from which employers will need to do this varies from employer to employer and is called the 'staging date'. The earliest staging date was in October 2012 and employers can find out their staging date from The Pension Regulator's website: http://www.thepensionsregulator.gov.uk/en/employers.aspx.
Auto enrolment will have a major impact on employers, particularly for those with no current provision, or current low pension membership participation rates.
From their 'staging date', all employers, irrespective of size, will have to auto enrol employees who are:
- Aged between 22 and State Pension Age
- Earning more than the 'earnings trigger' in each pay reference period. Depending on the structure of the pay reference periods, the earnings trigger will be £192 if employees are paid weekly, £833 monthly and £10,000 annually for 2019/20
- Not currently in a Qualifying Scheme.
Employers will be able to delay auto enrolment of new employees for up to three months from the date they join service. This also applies to employees whose income is initially below the earnings trigger, but subsequently exceeds it.
The scheme must satisfy a minimum contribution test. The minimum required contribution is based on a band of earnings falling between £6,136 and £50,000pa in 2019/20. This will be made up of an employer’s contribution of at least 3% and a personal contribution of 5%.
Alternative minimum contribution levels apply to existing schemes where the employer uses a different definition of earnings, known as pensionable salary (rather than qualifying earnings), and these minima will be dependent on the 'tier' (or 'set') that is used.
Employers will also have an ongoing duty to maintain qualifying pension provision for employees who:
- Are already members of a Qualifying Scheme; or
- Become members of such schemes.
National Workplace Pension Schemes
In addition to the traditional schemes provided by insurance companies, a number of providers have developed Qualifying Scheme solutions that are aimed at low to moderate earners and their employers. The providers offering this type of scheme are:
- The People's Pension
For more information on Pension Reform and auto enrolment please do not hesitate to contact us.
The value of a pension will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
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