At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer’s scheme. From 1 October 2012 (subject to an employer’s own introduction date), all eligible workers will be automatically enrolled into their employer’s qualifying pension scheme without any active decision on their part.
Employers can choose the qualifying scheme they use, which could include NEST (the National Employment Savings Trust). Each qualifying scheme must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it. Employers will have an ongoing duty to maintain qualifying pension provision for workers who are already members of qualifying schemes or become members of such schemes. Employers will also have an ongoing duty to maintain qualifying pension provision for workers who are already members of qualifying schemes or become members of such schemes.
Although new auto-enrolment duties come in from 1 October 2012, individual employers’ own duties will be introduced gradually over the following four years and will be based on the size of the employer, typically by PAYE size. The largest employers are due to auto-enrol between 1 October 2012 and 1 November 2012.
An eligible worker is an employee aged between 22 and state pension age and earning above the income tax personal allowance (£7,475 in 2011/12). Contributions will be payable on earnings between £5,035 and £33,540. Where a worker is automatically enrolled in a Defined Contribution (DC) Scheme or NEST, there will be a minimum contribution of 8% of qualifying earnings, of which the employer must pay a minimum of 3%. If the employer chooses to pay the minimum 3%, the worker will pay 4%, with a further 1% paid as tax relief by the government. Workers will be able to opt-out of their employer’s scheme if they choose not to participate.
The minimum contribution levels for DC Schemes and NEST will be phased in between October 2012 and October 2017. This phasing in process is detailed below:
- Between October 2012 and September 2016, a total minimum of 2% of qualifying earnings with at least 1% from the employer
- Between October 2016 to September 2017, a total minimum of 5% of qualifying earnings, with at least 2% from the employer
- From October 2017, a total minimum of 8% of qualifying earnings, with at least 3% from the employer
If you want to find out more, contact Matthew Walne who will be happy to help.