It is estimated that around 7million workers in the UK do not have any, or adequate, financial provision for their retirement. As a result the government has introduced ‘auto-enrolment’ to pension schemes to overcome either fear or lethargy on employees’ parts when they are faced with a long term financial decision.
What this means is that with effect from 1st October 2012 larger employers were obliged to automatically enroll eligible employees into a qualifying workplace pension arrangement and between now and 2017 smaller employers will have to do so too.
‘Eligible employees’ are:
- not already in a qualifying workplace pension scheme;
- at least 22 years old;
- below state pension age;
- earning more than £10,000 pa (subject to change each year); and
- working or ordinarily work in the UK (under their contract)
Income from the minimum level to £50,000 (2020/21) is in scope for deductions. This includes part –time & fixed term workers and in some cases those employed on a consultancy basis, i.e. where the individual is personally engaged and cannot substitute themselves for another worker. The financial impact on employers could therefore be significant.
Employers may choose to enroll employees into an existing scheme (at current contribution levels) or contribute toward a National Employment Savings Trust (NEST) for the employee. In either case, minimum contribution levels must be met. Employers can of course contribute more than the minimum levels if they wish. If employees elect to opt out of the scheme employers are not obliged to continue to make contributions.
In 2020 contribution levels are set at
Employee – 5% of salary
Employers – 3% of salary
State – 1% in the form of tax relief.
Automatic enrolment began to commence for larger employers in autumn 2012. The administrative burden of auto-enrolment may be quite significant and employers may face hefty fines if they fail to comply with the new rules. Those employers who handle their own payroll might consider this to be an appropriate time to outsource their payroll to an external provider who will take some of the strain for them. Please contact us if you would like to be referred to a cost effective pay roll provider recommended by myhrdept.
See the Auto Enrolment Planner for Employers for more information about auto enrolment and for help finding your own staging date.
We can also quote for one off fixed price support if you need to deal with a particular issue or you just want to review your employment contract. Call us on 01628 820515 to discuss your requirements or email us.