Pensions auto-enrolment was introduced in the UK in 2012 as a government initiative to increase the number of people saving for retirement. As an employer, it’s important to understand how pensions auto-enrolment works and what your responsibilities are under the scheme.
Who is eligible for auto-enrolment?
Almost all UK workers aged between 22 and State Pension age who earn at least £10,000 a year are eligible for pensions auto-enrolment. If you employ workers who meet these criteria, you must automatically enrol them into a workplace pension scheme. Workers between the ages of 16 and 21 are also eligible to opt-in to your workplace pension scheme, but do not have to be auto-enrolled.
What is a workplace pension scheme?
A workplace pension scheme is a type of pension scheme that is set up by an employer for their employees. The employer and employee both make contributions to the pension scheme, and the money is invested to provide an income in retirement.
What are your responsibilities as an employer?
Under the auto-enrolment regulations, as an employer, you have a number of responsibilities:
- You must choose a pension scheme that meets the government’s requirements for auto-enrolment. This can be a new scheme or an existing scheme, as long as it meets the necessary criteria.
- You must automatically enrol eligible workers into the pension scheme and make contributions on their behalf. You must also provide them with information about the scheme and their right to opt-out.
- You must monitor and manage the pension scheme, ensuring that it remains compliant with the regulations and that contributions are being made correctly. You must also provide information to employees about their contributions and the performance of the scheme.
- You must keep records of all auto-enrolment activity. This includes when workers were enrolled, how much they contributed, and when they opted-out (if applicable).
How much do you need to contribute?
Under the auto-enrolment regulations, both you and your employees must make contributions to the pension scheme. The minimum contribution rates are set by the government and are reviewed regularly. Currently, the minimum contribution rate is 8% of your employee’s earnings (including salary, bonuses, and commissions), with a minimum of 3% of that coming from the employer. However, you can choose to contribute more than the minimum amount.
What happens if an employee opts-out?
If an employee chooses to opt-out of the pension scheme, you must stop making contributions on their behalf. You must also refund any contributions that the employee has made within one month of their opt-out request.
What are the benefits of pensions auto-enrolment for employers?
Although pensions auto-enrolment places additional responsibilities on employers, there are also a number of benefits. Offering a workplace pension scheme can be an attractive benefit for employees, helping to attract and retain staff. By contributing to your employees’ pensions, you’re investing in their future and building a loyal workforce that feels valued and supported.