This article is a reminder, particularly for smaller employers, about Workplace Pensions and Automatic Enrolment. The following text, to a large extent, forms the basis of a new publication I have written to be published in the Bizezia online business library – click here for details of the digital library, running to nearly 700 publications. Your clients will thank you for providing to them this publication – contact us for details of a special offer.
What’s it all about?
Millions of workers are being automatically enrolled into a workplace pension by their employer. Once enrolled, not only will employees pay in to it but so will their employers and the government too.
John puts in £40 and his employer puts in £30.
The government adds £10 tax relief.
A total of £80 will be paid into John’s pension.
This is to make it easier for employees to start saving. Employees can opt out if they want to, but that means losing out on employer and government contributions – and if you stay in you’ll have your own pension that you get when you retire.
Every employer must automatically enrol workers into a workplace pension scheme who:
- are not already in a scheme
- are aged between 22 and State Pension age
- earn more than £10,000 a year
- work in the UK
You can use this interactive tool to find out when firms like yours and your clients will be enrolled.
Get more information by reading the guide at: www.gov.uk/workplace-pensions.
If you’re an employer, you need to act now to prepare for the new rules for workplace pensions: Visit The Pensions Regulator website.
What is automatic enrolment?
UK employers have to automatically enrol their staff into a workplace pension if they meet certain criteria. The law on workplace pensions has now changed and every employer must comply.
Tools for automatic enrolment to get you started
The Pensions Regulator has created four interactive tools to help you get started with automatic enrolment – available here.
You can use these tools to:
- Find out your staging date
- An employer’s duties
- How to automatically enrol your staff
- Discover the minimum employer contribution:
There may be circumstances that are not covered in the tools that could have an impact on the decisions or changes you’re required to make. For these reasons, you may need to seek additional guidance or professional advice to ensure that you meet your legal obligations.
The essential guide to automatic enrolment
People are living longer yet too many people are under-saving or not saving at all for what could be a long retirement. The law on workplace pensions has changed to make it easier for millions more people to build up a pension, particularly those on lower incomes.
Automatic enrolment means that, rather than having to actively choose to join a pension scheme, staff are put into one by their employer as a matter of course. If they don’t want to be in the pension scheme, they must actively choose to opt out. It’s to encourage people to stay in pension saving.
Find out how to prepare for automatic enrolment with this step-by-step guide to your new legal duties, downloadable from the Pensions Regulator at: www.thepensionsregulator.gov.uk/employers/e-brochure/index.html
The electronic brochure outlines the main steps that you need to take to be ready for automatic enrolment. You can also find alternative non-flash and PDF formats.
Please note: There may be circumstances that are not covered in the Pensions Regulator’s guide that could have an impact on the decisions or changes you’re required to make. Additional guidance or professional advice may be needed to ensure that legal obligations are met.
Does automatic enrolment apply to me?
Are you an employer with staff working for you in the UK? If so, then yes, automatic enrolment does apply to you and there are things you will need to do. See: www.thepensionsregulator.gov.uk/employers/does-automatic-enrolment-apply-to-me.aspx
What happens if I don’t comply?
There are certain employer duties you must comply with. If you fail to comply with your duties, the Pension Regulator may take enforcement action and issue a notice and/or a penalty. See: www.thepensionsregulator.gov.uk/employers/what-happens-if-i-dont-comply.aspx. Basically, the Pensions Regulator can impose fines – these range from a fixed fine of £400 to daily fines. For example, employers with 5-49 employees will be fined £500 per day. The Pensions Regulator can also impose civil penalties of £5,000 for individuals and up to £50,000 for organisations and, in extreme cases, prosecution through the courts.
Automatic enrolment duties come into force for you from your ‘staging date’. You can find out your staging date by entering your PAYE reference into the tool provided by the Pensions Regulator. See: www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx
For more information click here.
You will have the option to postpone automatic enrolment for up to three months from your staging date. If you decide to do this, you won’t need to enrol anyone until the end of the postponement period.
For more information go to postponement at: www.thepensionsregulator.gov.uk/employers/postponement.aspx
As an employee, how much will be paid into your pension pot?
An employee’s pension pot will comprise contributions from them, their employer and in most cases the government, in the form of tax relief (click for details).
Contributions will increase gradually, according to a set timetable: The minimum total percentage required is set at 2% initially, rising to 5% by 2016 and 8% by 2017. Overtime and bonus payments are included in “earnings”.
Tax Relief for employees
Employees can get tax relief on private pension contributions worth up to 100% of their annual income. This means they either don’t pay Income Tax on contributions to their private pension or they get tax back.
Employees usually don’t have to claim tax relief on pension contributions – they get it automatically if either:
- they’re in a workplace pension and their employer takes contributions out of pay before deducting Income Tax
- the pension provider claims tax relief for the employee at a rate of 20% and adds it to the pension savings – this is called ‘relief at source’
Employees get relief at source in all personal and stakeholder pensions, and some workplace pensions.
It’s up to the employee to make sure they don’t get tax relief on pension contributions worth more than 100% of their annual income – HM Revenue and Customs (HMRC) can ask them to pay back any tax relief above this limit.
When employees have to claim tax relief
You may be able to claim tax relief on pension contributions if:
- you pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you (relief at source)
- your pension scheme isn’t set up for automatic tax relief
- someone else pays into your pension
An employee can claim tax relief on an extra 20% in their Self Assessment tax return if they pay Income Tax at the 40% rate.
An employee can only claim tax relief on the extra 25% in your Self Assessment tax returnif theys pay Income Tax at the 45% rate.
Limits to tax-free contributions by employees
You usually pay tax on private pension savings above:
- 100% of your annual income – this is the limit on tax relief you get
- £40,000 a year – this is the annual allowance
- £1.25 million in your lifetime – this is the lifetime allowance
You may also have to pay tax if your pension provider doesn’t invest your pension savings according to rules set by HM Revenue and Customs (HMRC).
As an employer, where do I start?
The first thing you should do is to find out the staging date. Once you know when this is, you can start planning to make sure you’re ready in time.
Your staging date is when your automatic enrolment duties come into force and is based on the total number of people in your PAYE scheme. You will need your PAYE reference to find out your staging date.You can find your PAYE reference on a P6 / P9 coding notice or on your P30BC white payslip booklet.
Some small employers can move their staging date to a later date than that determined on 1 April 2012 if, at that time, they had fewer than 50 staff and were part of a PAYE scheme of more than 50 people.
Find out more about modified staging dates
The tool provided by the Pensions Regulator is designed for employers with only one Pay As You Earn (PAYE) scheme. In some cases there are exceptions to the information provided by the tool and you will need to make some additional checks. It remains the employer’s responsibility to correctly identify your own staging date.
If you have staff in more than one PAYE scheme, you’ll need to enter the details of each PAYE scheme into the tool. Your staging date will be the date that’s earliest. This will be the case even if the majority of your staff are not in that PAYE scheme.
You should read exceptions on the information provided by the tool, at: thepensionsregulator.gov.uk/employers/exceptions.aspx
The staging date is determined by the size of an employer’s PAYE scheme based on the number of persons within that scheme. The number of persons in a scheme is wholly derived from the latest information from HM Revenue and Customs held by the regulator on 1 April 2012.
As an employer, who do I need to put into a pension scheme?
You must automatically enrol all staff who are:
- aged from 22 up to state pension age
- working in the UK
- earning over £10,000 a year.
Some staff who don’t meet the criteria above are able to opt in to the pension scheme you’re using for automatic enrolment. You must put them in if they ask.
You’ll have to pay a minimum employer contribution for all staff you put into this scheme.
Certain other staff can ask to join a pension scheme. You must put these staff in a scheme, but the rules are different and there’s no requirement for you to pay an employer contribution.
It’s the age and earnings of a member of staff that determines what ‘type’ of worker they are and therefore what duties you’ll have for them.
For more information click here.
As an employer, what else do I need to do?
You’ll need to write to each member of staff individually to tell them how they’ve personally been affected by automatic enrolment.
The information you’ll need to tell them is different depending on their rights and the duties you have for them.
You must also provide certain information to the Pensions Regulator about how you’ve complied with your duties.
Find out more about reporting and regulatory duties
National Employment Savings Trust (Nest)
To facilitate auto-enrolment, the government has created a new defined-contribution pension scheme called Nest.
Employees will be enrolled into Nest if their employer doesn’t have an existing pension scheme or decides not to use a pension scheme from a provider. Nest is designed for low-to-moderate earners.
Are you in?
1. ©Much of the information herein is derived from a number of UK Government sources, which are subject to Crown copyright. Those source include:
The Pensions Regulator
2. The section above titled: How much will be paid into my pension pot? uses information provided by Which? at:
He was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996.
Martin Pollins ran his own firm based in Sussex and was the first Accountancy firm in the UK to advertise on television and Martin went on to create and launch the CharterGroup Partnership (the UK's first Accountancy network) and then LawGroup UK (one of the largest networks of lawyers in the country).
Martin started work on the Bizezia concept in 1996, developing the broad range of information resources and products over the past 18 years.
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