For some time, there has been a surprising amount of workers who haven’t been saving enough, in preparation for their retirement. As such, when the time comes to end their days of working, they find themselves struggling to live comfortably, with the looming concern of money hanging over their heads.
Although the State Pension is available, it isn’t necessarily enough to make the most of retirement, especially as each generation appears to be living longer than the previous. Not only that, but with businesses and employers previously having the choice to decide whether or not to offer pensions to their employees, some workers haven’t been able to make the most of this additional benefit. With this in mind, private pensions and savings are becoming more vital than they ever have been.
The Government has recognised this issue and as such, has introduced compulsory workplace pensions, otherwise known as automatic enrolment. Beginning in October 2012 and expected to be completed by February 2018, employees are now required to provide workplace pensions to their employees.
What is Automatic Enrolment?
As employers, you are now required to offer workplace pensions, to those employees who are eligible. The aim of automatic enrolment is to ensure that more individuals have saved enough during their time at work, to be able to live comfortably once they reach retirement.
The scheme is being rolled out over six years, from October 2012 through to February 2018. The UK’s largest employers and companies were the first to roll out compulsory workplace pensions, and by the time February 2018 arrives, all eligible employers should be.
Each employer is expected to enroll each of their workers into the scheme, so long as they are eligible. They are also required to make minimum contributions, as is the employee, too. Of course, as stated, the automatic enrollment only applies to those employees that are eligible, which we will discuss further on.
What should you be providing your employees?
Firstly, you should begin by checking to see when you are required to sign up the scheme by. You can do this by checking your ‘staging date’ using this calculator. If you fail to join the scheme before or on your staging date, you could receive daily fines between £50 and £2500, depending on number of employees at your company.
As your staging date approaches, you should make your employees aware of the options available to them, in terms of workplace pensions schemes. This depends entirely on the type of employee they are and where they fall in the groups for the compulsory workplace pension scheme. Employees are grouped as ‘eligible’, ‘non-eligible’, and ‘entitled’.
If your employees are between 22 years old and the State Pension age, earn over £10,000 each year and have a contract of employment, they will be classed as eligible jobholders. As such, they will need to be automatically enrolled as part of the compulsory workplace pension scheme. As their employer, you will be required to regularly contribute to their pension, as will they.
On the other hand, non-eligible jobholders are employees who:
- Are between 16 and 21 years of age, or between the standard retirement age and 74
- Earn over £10,000 each year
- Have a standard contract of employment
- Currently, do not have a workplace pension that meets certain requirements
- Are between the ages of 16 and 74
- Earn between £5,824 and £10,000
- Have a standard contract of employment
- Currently, do not have a workplace pension scheme that meets certain requirements
They will not be automatically rolled but can request to join the scheme and receive contributions from you as their employer.
If you employee is between 16 and 74 years old, earns less than £5,824 has a standard contract of employment, they are classed as entitled workers. This means that they can ask to join the scheme, but you do not necessarily have to offer them the same scheme as other employees. You also are not required to make contributions to their pension, if you so wish.
If employees choose to opt out
Your employees are entitled to opt out of the workplace pension scheme, if they feel that it’s in their best interests. However, this should only be for three years and as their employer, you are required to sign them back in after this period. They can then again, choose whether to not to opt out.
If your employees request to opt out, you should provide the contact details for their pension providers. Advise them that any forms sent to them should be completed and returned within one month of enrolment, in order to receive a full refund of any money they have contributed.
Choosing your workplace pension scheme
There are a number of workplace pension schemes you can choose to offer your employees, each with their own benefits. Whether it’s a current scheme you hold, or a new one to introduce to your company, you should ensure that the pension scheme you choose meets the requirements of automatic enrollment.
To discover more about the compulsory workplace pension, head over to the Pensions Advisory Service, for a full overview of what is expected of you as an employer. Alternatively, feel free to get in touch with us to discuss your options and any questions you might have concerning automatic enrolment.