What is Auto Enrolment?
In an effort to encourage more people to save for their retirement, the Government has introduced new rules which require employers, and most employees, to save into a pension scheme.Although employers are required to automatically enrol much of their workforce, employees have the right to opt-out and have their membership of the pension scheme cancelled. Monitoring who opts-out will be an ongoing process because employers are required to review their workforce, broadly every three years, and re-enrol anyone who is not a member of the pensions scheme if on the re-enrolment date the employee meets the requirements for automatic enrolment.
When does it start?
The date employers begin to enrol employees for the first time is being introduced on a rolling basis, determined by the number of employees held on the organisation’s tax records at 1 April 2012. Larger employers started enrolling first in 2012 and the smallest ones from April 2017.The Pensions Regulator will write to every employer, twelve months and three months before its start date. Employers can also choose to delay the date they automatically enrol employees, following their first start date, in certain circumstances. This is known as postponement.
Who has to be enrolled?
Not all employees have to be automatically enrolled into pension saving, as some are exempt or only have the right to ask to join. There are also rules about the employee ordinarily working in the UK and actually being an employee or worker within the employer’s organisation.When an employer implements automatic enrolment, particularly for the first time, it will need to examine its workforce closely to see who has to be enrolled automatically and who does not. And if it is using an existing pension scheme, active members still need to be categorised because they have to receive certain information according to their employee category.
Using age and specific earnings (as not all earnings count), each employee will fall into one of the following categories:
- Eligible jobholder
- Non-eligible jobholder
- Entitled worker
Eligible jobholders – have to be enrolled into a pension scheme and the employer has to pay pension contributions.
Non-eligible jobholders – have the right to ask to be enrolled into a pension scheme and if enrolled the employer has to pay pensions contributions.
Entitled workers – have the right to ask to be enrolled into a pension scheme but the employer doesn’t have to pay pension contributions. It does, however, have to make sure the scheme the employee joins is registered for tax purposes, deduct the employee’s own contributions and pay them over to his or her chosen scheme.