The government introduced a new law in 2012 which requires every employer to automatically enrol their employees into a workplace pension. This is called automatic enrolment. The law also requires employers to put money in to their employees' pensions. These changes are being introduced to help people save more for their retirement.
The new law means that employers will have to automatically enrol all employees who:
- are not already in a workplace pension scheme
- are at least 22 years old
- have not yet reached State Pension age
- earn more than the minimum earnings threshold (currently £10,000 a year)
- work or ordinarily work in the UK (under their contract)
When you will be automatically enrolled depends on how big your employer is. Large employers will enrol workers into a pension scheme and contribute to this pension any time from October 2012 to February 2014. If you work for a smaller employer, your employer will enrol you and contribute to your pension pot by April 2017. Everyone should be automatically enrolled by 2018 or have been given the opportunity to opt out.
If you are an employee, your employer will automatically enrol you into the company pension scheme and money will go into your pension pot every payday from your own pay, from your employer and from the government in the form of tax relief. You can opt out but this means you will not be in the pension scheme and will not get the money from your employer or the tax relief from the government.
The amount paid into your pension pot depends on when you are automatically enrolled and will increase gradually from 2012 to 2018. The table below shows the minimum contribution amounts. These amounts do not apply to all of your salary but on what is earned over a minimum level, currently £5,824, up to a maximum limit, currently £42,385.
|Date||Minimum employee contribution||Government tax relief||Minimum employer contribution||Total minimum contribution|
|October 2012 to September 2017||0.8%||0.2%||1%||2%|
|October 2017 to September 2018||2.4%||0.6%||2%||5%|
|October 2018 onwards||4%||1%||3%||8%|
Automatic enrolment does not apply to:
- self-employed individuals
- one-person companies
- armed forces
If you fall into one of these groups you should consider setting up a personal pension to save for your retirement.
If you are an employer there are several steps that you will need to take:
- you should find out when you will need to auto-enrol your employees. This date will depend on the size of your largest PAYE scheme. You can check your staging date using The Pensions Regulator’s calculator
- you should then assess who in your workforce must be automatically enrolled
- you can use a current pension scheme for auto-enrolment, providing it meets the criteria to be an auto-enrolment scheme (this depends on the level of contributions and provision of a default fund). You can also use a new one – either from a pension provider or through the National Employment Savings Trust (NEST) which will accept all employers who want to use NEST as their pension provider. You should check which pension provider is best for you and your employees
- once you have a pension scheme in place you will need to explain what is happening to your workforce; automatically enrol them into the pension scheme you have chosen; and make a declaration of compliance to The Pensions Regulator. The Pensions Regulator has detailed guidance to help you through the process