All eligible employees will have to be auto enrolled into a suitable workplace pension arrangement and contributions paid on their behalf. All employees will be able to opt in and opt out, but if they do opt out, you will have to re-enrol them every 3 years.
You will be obliged to conform to auto-enrolment requirements from your ‘Staging Date’ which will depend on the number of employees on your PAYE payroll at April 2012. You will be allowed to commence auto-enrolment ahead of the planned start date if they wish.
Minimum contributions
From April 2017, a minimum of 8% of Qualifying Earnings (taxable earnings between £5,564 and £42,475 (2012/13 terms)) will have to be contributed, with at least 3% being paid by the employer. A sliding scale will apply prior to this date. Alternatively, an employer will be able to certify that they meet auto-enrolment requirements via one of the following bases:
• 9% of basic pay (at least 4% from the employer); or
• 8% of basic pay (at least 3% from employer) provided that total basic pay is at least 85% the total earnings for all relevant individuals; or
• 7% of pensionable pay (3% from employer) provided that the total pay bill is pensionable.
When assessing an employee’s earnings, salary, overtime, commission, bonuses, sick pay, maternity, paternity and adoption pay need to be considered.
Automatic or voluntary enrolment?
All employees aged between 22 and State Pension Age (SPA) who are working (or ordinarily working) in the UK will have to be auto-enrolled if they have earnings above a level known as the auto-enrolment threshold (£8,105 for the tax year 2012/13).
Workers aged between 16 and 22, and those who have attained SPA, but are under age 75, who have earnings above the auto-enrolment threshold may opt to become members of a Qualifying Scheme, requiring employer contributions. Similarly any employee earning between the Qualifying Earnings threshold (£5,564 for 2012/13) and the auto-enrolment threshold will have the right to opt in and receive an employer contribution.
Those aged between 16 and 75, but earning below the Qualifying Earnings threshold will also be able to demand membership of a pension scheme. However there will be no requirement for employer contributions.
The thresholds quoted above reflect the Government’s original intentions but are subject to confirmation.
Probationary periods
Employers will be able to wait up to three months before automatically enrolling a new employee into a pension scheme, rather than having to do so straight away. However, if they prefer, workers can elect to opt in and receive an employer contribution as soon as they start a new job.