Auto Enrolment — Just the boring facts….

Workplace pensions law has changed. Every employer in the UK will be required to help more of their workers save for retirement.

The government has introduced a new law to make it easier for people to save for their retirement. It requires all employers to enrol their workers into a qualifying workplace scheme if they are not already in one. At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer’s scheme. Automatic enrolment is meant to overcome this.

Employers are required by law to write to all workers (except those aged under 16, or 75 and over) explaining what automatic enrolment into a workplace pension means for them.

The employee may choose to opt out of pension saving if they wish.

The minimum contribution level is equivalent to 8% of qualifying earnings, of which the employer must pay at least 3%, although they could choose to pay more. The individual must make up the difference, if any, and will receive tax relief on their contributions. So if an employer pays 3%, the individual must pay 4% and will receive 1% tax relief, based on a basic rate of tax of 20%.

The minimum contribution rates that an employer must pay into their worker’s pension scheme are being introduced gradually. This is known as ‘phasing’.

Phasing applies to most, though not all, types of pension scheme (your scheme provider will be able to tell you if phasing applies to you).

The minimum contributions are currently a total contribution of 2% with at least 1% employer contribution.

Transitional periodDurationEmployer minimum contributionTotal minimum contribution
1Employer’s staging date to 30 September 20171%2%
21 October 2017 to 30 September 20182%5%
1 October 2018 onwards
3%8%

First staging date for large firms (120,000+ employees) was 1st October and for companies with less than 30 employees from 1st November 2015 to 1st April 2017 depending on PAYE code.

NEST

NEST is the National Employment Savings Trust. It is a qualifying scheme under the Government’s reforms and is intended to complement existing workplace pension provision. It has been set up to meet the needs of people new to pension saving and is open to all employers and self employed individuals.

NEST’s website provides more information.

There are alternatives to NEST depending on an Employer’s requirements.