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What is Auto Enrolment and do I need to worry about it?

Files with Pension written on one of them

Auto Enrolment (also known as Workplace Pensions) is a scheme that makes it mandatory for employers to contribute to a pension scheme for their eligible employees.  The scheme is being phased in – it started in October 2012 for large employers and by October 2018 all employers must have joined.  Employers can check their staging date (the point at which they must have a pension scheme in place) here by entering their PAYE reference number.

There are 4 different types of employees under the scheme.

1. Eligible Jobholders

These are employees aged between 22 and state pension age who earn more than £10,000 per year.

These employees must be enrolled automatically in the pension scheme and employers must make a pension contribution for them.  Employees may also be required to make a contribution to bring the total contribution up to the required level.  An eligible employee can request to opt out of the scheme for 3 years, but after the 3 years has passed the employer must re-enrol them.

2. Non-eligible Jobholders

These are employees that are either earning more than £10,000 per year but are outside of the age range to be an eligible jobholder, or who are aged between 16 and 74 and earn between £5,824 and £10,000 per year.

These employees do not have to be enrolled automatically, but they can request to join the pension scheme.  Employers must make a contribution for them and the employee may also have to make a contribution.

3. Entitled Workers

These are employees who are aged between 16 and 74 and who earn below £5,824 a year.

These employees can ask to join a pension scheme, but it does not have to be the same scheme that is provided for the eligible jobholders.  There is no requirement for an employer to make contributions for these employees.

4. Other Employees

Employees who fall outside of all the other categories have no right to join the employer’s pension scheme, and no right to employer’s contributions.

 

Contribution Levels

There is an overall level of contribution that must be made.  Some of this must be met by the employer, some of it is given in tax relief by the government, and the remainder can be met by either the employer or the employee depending on whether the employer chooses to contribute more than the required minimum.  The levels of contribution required are being phased in over the next few years and are as follows.

Employer Minimum Contribution

Government Tax Relief

Employee Contribution

Total Contribution Required

Until September 2017

1%

0.2% 0.8% 2%
October 2017 – September 2018

2%

0.6%

2.4%

5%

October 2018 onwards

3% 1% 4%

8%

 

If you are self-employed, or are the sole director and employee of a Limited company then you do not have to set up or enrol in a pension scheme.

Please note that this is general guidance only and you should speak to your pensions advisor or an independent financial advisor about your specific circumstances and obligations.

 

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