What You Need To Know About Auto-Enrolment | LabourBlawg

What You Need To Know About Auto-Enrolment

by SolicitorsNorwich on May 25, 2012

As an employer, you may be aware of the proposed implementation of an auto-enrolment pension scheme for the UK. The scheme has been designed to make it easier for employees to save for their retirement as at present many people do not take up any offer of a workplace pension scheme even where it is offered by an employer.

The responsibility of this new law will rest with the employer rather than the employee. With the change, employers must enrol their workers into a workplace scheme if the employee is not already in one so that more people are preparing for their retirement, helping to secure a more financially sustainable future.

There are three types of qualifying workplace schemes:

  1. Defined contribution (DC) – benefits in this instance are determined based on the amount that the employee and the employer pay into the scheme, the age at which the worker retires, plus on the performance of the investments made with that money.
  2. Defined benefit (DB) – this is also known as a ‘final salary’ or ‘salary-related’ scheme. The benefits are accrued independently of the contributions payable and investment returns. In most instances, the benefits relate to the employee’s earnings when they retire or leave the scheme. It is the employer’s responsibility to define what will be paid and also to honour this payment.
  3. Hybrid scheme – A hybrid scheme comprises of both DC & DB. It is a more complicated scheme so those choosing this option should ensure that they have a firm understanding of the features and regulations that surround it. With the implementation of auto-enrolment, it is predicted that the number of hybrid pension schemes will increase.

As of 2012, employers will have to pay a minimum of 3% into a pension scheme for their employees for both DB and DC schemes.

When auto-enrolment comes into force, it is imperative that employers enrol their employees in the scheme where workers are at least 22 years of age, are below state pension age, earn more than £7,475 per year and work in the UK. They must also not already be enrolled in a workplace pension scheme. However, it is worth noting that anyone can choose to join the workplace scheme whether they are eligible to automatically enrol or not. Equally, an employee can choose to opt out of the pension scheme.

While the automatic enrolment scheme comes into effect as of 1st October 2012, starting dates for different businesses will vary based on your company’s size as of 1st April 2012. A full list of the ‘staging’ dates can be found here: http://www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx.

While auto-enrolment might seem a way off, it is important that you understand the legislation around it and work with your HR team to implement the correct process for enrolling staff. More information on employment law and pensions can be found at www.pensionsadvisoryservice.org.uk.

Previous post:

Next post: