Are you up-to-date on pension auto-enrolment?

September 2012

Since the framework for pension auto-enrolment - whereby employers must automatically enrol staff into a pension scheme - was first set out in 2008, the legislation has been subject to numerous changes. With the first enrolments commencing this Autumn, here is an update on the current situation.

A brief recap

Despite the recent changes to the Pensions Act, the central principle of the regulations remains unchanged. Under the scheme, employers will be required to enrol automatically all eligible employees into a qualifying pension scheme and pay a minimum contribution into the fund. The move has been hailed the most radical change to workplace entitlements since the introduction of the National Minimum Wage.

Auto-enrolment is being phased in over a number of years, starting from October 2012 (larger employers first, smaller employers last).

To help employers adjust, compulsory contributions will also be phased in, starting at 1% before eventually rising to 3%. Employees will also contribute to their pension scheme - this will start at 1% of their salary, before eventually rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate.

So what's changed?

A revised timetable

In response to a consultation on the reforms, the Government made changes to the original timetable. As part of the changes, businesses with 50-249 staff will now have a staging date between April 2014 and April 2015.

Meanwhile, no small employer with fewer than 50 workers in its PAYE scheme will be brought in before May 2015. Businesses with fewer than 50 workers were originally scheduled to begin pension auto-enrolment in April 2014.

Consequently, firms with fewer than 49 staff will now begin to be staged in between June 2015 and April 2017. These small employers will be split between:

• those with 30 or more staff (who will be staged between August 2015 and October 2015), and
• those with fewer than 30 (who, apart from a test tranche in June 2015, will not be staged until January 2016).

New employers will have until February 2018 to commence auto-enrolment.

Note that the staging dates for firms with 250 or more employees remain unchanged. Those with 120,000 or more personnel in their PAYE scheme must enrol staff from 1 October 2012, with firms with fewer than this number (up to 250 employees) being brought on board month by month until February 2014.

Employers can check their staging dates at www.thepensionsregulator.gov.uk.

Flexible staging dates

In an effort to afford firms greater flexibility, the Pensions Regulator has announced that employers will be able to bring forward their staging date. Firms that choose to do so must notify the Pensions Regulator in writing at least one calendar month before the new earlier staging date.

New eligibility thresholds

When the legislation was originally published, it was proposed that workers must be earning at least £7,475 to qualify for auto-enrolment. However, the Government has now confirmed that the earnings limits for contributions will rise in line with the thresholds for tax and national insurance.

This means that eligible workers must now be earning at least £8,105 a year to qualify for auto-enrolment, although this figure is expected to be reviewed annually. Workers must also be aged between 22 years and the State Pension Age, working or ordinarily working in the UK, and not already in a qualifying pension scheme.

Meanwhile, minimum employer and employee contributions will now be based on 'qualifying earnings' - in 2012/13 terms, between £5,564 and £42,475. The threshold rates will be reviewed by the Government each tax year.

Qualifying earnings cover all of the following pay elements (gross):

• Salary
• Wages
• Commission
• Bonuses
• Overtime
• Statutory sick pay
• Statutory maternity, paternity and adoption pay.

Please contact us for advice. We can help with all your financial planning needs and will be delighted to assist you.