Pensions auto-enrolment: advice for employers and employees
Workplace pensions law has changed. In the biggest pension revolution since wartime prime minister David Lloyd George introduced state pensions, millions of workers are being automatically enrolled into a workplace pension by their employer. Once an employee is enrolled, not only will they pay into the pension but so will their boss and the government.
Karen Brady is just one of several high-profile business leaders who have featured in the government’s poster campaign called I’m in.
When does it start?
The first wave of the scheme has begun, with businesses of more than 120,000 staff starting first. Over the next 6 years, until 2018, smaller firms will start enrolling staff.
The Department for Work and Pensions (DWP) estimates that 380,000 workers will be signed up in October, a total of 420,000 will be enrolled by the end of November, and 600,000 will be part of the scheme by the end of 2013.
Firms with less than 50 workers will not start enrolling their staff until June 2015 at the earliest. But even the smallest employer – such as an electrician employing a full-time assistant – will be obliged by law to enrol their staff.
So what should employers do about auto-enrolment?
Every employer has new legal duties to help their workers save for retirement. They must automatically enrol certain workers into a qualifying workplace pension scheme and make contributions towards it. All employers have a staging date for when they need to do this and the Pensions Regulator is sending all organisations a letter notifying them of their particular staging date if it is less than 18 months away.
What are the main steps to take as an employer?
1. Nominate a contact in the organisation for all auto-enrolment communications
2. Know your staging date and draw up a plan to:
- Assess your workforce
- Review your pension arrangements
- Tell your workforce about the changes
3. From your staging date onwards you need to:
- enrol all eligible employees into a pension scheme
- register with the Pensions Regulator and keep records
- contribute to your workers’ pensions
It is important to make sure the pension scheme you select on behalf of your company can deliver good outcomes for your employees. An independent financial advisor can offer expert advice about the range of pension schemes on offer.
How does auto-enrolment affect employees?
Employers will gradually enrol all eligible employees into workplace pensions between 2012 and 2018. To be eligible for automatic enrolment, you need to:
- be employed (if you are self employed or the sole director of your own company, you won’t be automatically enrolled into a workplace pension)
- be aged between 22 and State Pension age • earn more than £9,440 a year
- work in the UK
If you are a part-time worker who earns less than £9,440 a year, you can ask to take part if you want to and, if you earn more than £5,564, your employer will be obliged to make a contribution too. Those aged under 22, or over state pension age and still working, can also opt in in the same way.
You can also opt out of the scheme if you wish, as long as it is within a month of the scheme starting in your workplace. Otherwise you will start to build up a pension pot within the scheme. Anyone who does opt out will be enrolled again every three years by an employer, or after three months at a new job, in which case they will need to complete the opt-out process again if they wish to do so.
Should I opt out?
In general, the answer is no. By opting out, you will not receive the contributions your employer puts into the pension and you will not get these payments in any other way, such as in your salary.
Next steps
If, having read this blog, you’re still not sure how auto-enrolment will affect you, then please call Marchwood IFA now and ask us to review your pension arrangements. If you are an employee, we can help you make the right decisions to help you achieve your retirement goals. If you are an employer, we can help you through the process of auto-enrolment, particularly the selection of the right pension scheme for your employees.