Workplace Pensions: Auto Enrolment

What is it?

It’s a government initiative, called workplace pension reform, designed to get millions of workers in the UK saving into pensions, by automatically enrolling those who do not already contribute to a workplace pension.

The new rules mean all UK businesses will legally have to offer pensions to eligible workers by 2018.

Who’s eligible?

Everyone who is employed aged between 22 to state pension age, working in the UK and earning above £10,000 (for 2014/15) is an eligible jobholder for auto enrolment.  That means they are legally entitled to be provided with a pension and automatically enrolled into it.  While other workers won’t be automatically enrolled into a pension scheme, they have the right to ask to join.

How much is this going to cost employers?

Eventually employers will have to contribute a minimum of 3% of workers qualifying earnings into a pension fund every year.  However this is being phased in with the option to pay a minimum of 1% up to October 2017, escalating by 1% a year after that until October 2018, when employers will be paying the full 3%.

The cost of not complying?

Employers who ignore a warning letter from the Pension Regulator, can expect a £400 fixed penalty notice.  And if they are seen to be continuing to flout the rules, they will receive an escalating penalty notice of anything from £50 per day (yes per day), for firms with 1-4 workers, to £10,000 per day for firms with 500 or more worker.

Plan ahead

Over the next few years, medium and smaller businesses will gradually stage into auto enrolment.  It is essential that employers understand their obligations and the date when these are effective from.  Finding a pension provider significantly earlier than your staging date is essential. Employers should not underestimate how long it will take to put auto enrolment in place and shouldn’t wait until the last minute.

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