What is pension auto enrolment and how does it affect your business?
Workplace pensions – meet the government’s auto-enrolment regulations and provide a tax-efficient way to save for the long term.
Auto enrolment was introduced in the UK in 2012 to help people save for retirement. It requires every employer, with at least one member of staff, to assess their workforce and automatically enrol all eligible employee into a pension scheme.
From 2012 to 2018, every incorporated UK company, was given a staging date whereby they had to comply with auto enrolment duties and notify The Pension Regulator through a declaration of compliance. Since 2018, each company must now comply with auto enrolment by their duties date. This date starts when the company have more than one employee on their payroll.
Who is eligible and are employees given a choice?
Eligible employees are those who earn over £10,000 per annum and are aged between 22 and the state pension age (currently 66 years old). These employees will be automatically enrolled into the pension scheme but given the option to opt out should they wish. If they opt out, they will be refunded their initial contribution in their next pay run.
What is a declaration of compliance and who is responsible for completing it?
A declaration of compliance is an online form which notifies The Pensions Regulator that each employer has complied with their auto enrolment duties. It is very simple to complete and should be done by the employer. However, it can be done on the employer’s behalf by the team here at Dragon Argent as your agent.
What is re-enrolment and re-declaration?
Every three years employers have to reassess their workforce and re-enrol any employees who are eligible that had previously opted out. This is called ‘re-enrolment’ and is to ensure that those opting out early in their career do unintentionally not save for retirement should they remain with one employer for a long period of time.
What type of auto enrolment scheme would suit your workforce?
There are two main types of auto enrolment pension schemes: ‘relief at source’ and ‘net pay arrangement’. The different schemes use different tax relief methods and therefore it should be considered when deciding which scheme suits your workforce. We at Dragon Argent can help explain these differences and how they will impact your workforce.
Furthermore, auto enrolment pension schemes can calculate contributions on either ‘qualifying earnings’ or ‘total earnings’. ‘Total earnings’ is fairly self-explanatory in that the contribution is a percentage of the total earnings in that pay period. Whereas qualifying earnings means that contributions are calculated as a percentage of a band of earnings in line with The Pension Regulator’s earnings thresholds. The monthly thresholds for 2023-24 are between £520 and £4,189.
How much does an employer have to contribute?
The legal minimum an employer must contribute into their employee’s pension is 3%. The employee must then contribute a further 5% to ensure an overall of 8% is being contributed. However, should an employer wish to contribute more, for example 4%, their employees will only have to contribute the remaining 4%.
If you want to understand more about auto enrolment and what is legally required of your business to comply with The Pension Regulator, then please get in touch.
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