A workplace pension is a way of saving for your retirement that’s arranged by your employer. Other names for workplace pensions are ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pensions. Most new pension schemes are now ‘money purchase’ also known as ‘defined contribution’ or ‘DC’ schemes. The following information only deals with money purchase scheme. Other schemes are known as defined benefit schemes and are not dealt with here.
Automatic enrolment means that, rather than having to actively choose to join a pension scheme, staffs are put into one by their employer as a matter of course. If they don’t want to be in the pension scheme, they must actively choose to opt out.
Employer’s automatic enrolment duties come into force from a ‘staging date’. The employer can find out their staging date by entering their PAYE reference into this tool.
The employer would need to write to each member of staff individually to tell them how they have personally been affected by automatic enrolment. The information sent to employees is different depending on their rights and the duties the employer has for them.
There are three different categories of workers relating to automatic enrolment: Eligible Jobholders, Non-eligible Jobholders and Entitled Workers.
Eligible jobholders
‘Eligible jobholders’ is a phrase used for workers who must be automatically enrolled into a workplace pension scheme.
To be an ‘eligible jobholder’ a worker need to be:
- aged between 22 years old and state pension age
- earn more than £10,000 a year
- work in the UK.
However, if you are self-employed or the sole director of your own company, you will not be automatically enrolled into a workplace pension.
Non-eligible jobholders
‘Non-eligible jobholders’ is a phrase used for workers who are not eligible for automatic enrolment but can choose to opt in to an automatic enrolment pension scheme. Non-eligible jobholders are either:
- Aged between 16 and 74 years of age; and
Are working or ordinarily work in the UK under their contracts; and
Have qualifying earnings payable by the employer which are more than the lower earnings threshold and not more than the earnings trigger for automatic enrolment.
For 2014/2015 the lower earnings threshold is £5,772 per annum, £481 per month, £111 per week. The earnings trigger for automatic enrolment is £10,000 per annum.
Or
- Aged between 16 and 21, or state pension age and 74; and
Are working or ordinarily work in the UK under their contract; and
Have qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for automatic enrolment.
For 2014/2015 the lower earnings threshold is £5,772 per annum, £481 per month, £111 per week. The earnings trigger for automatic enrolment is £10,000 per annum.
The state pension age at April 2014 is 62 for women and 65 for men.
Non-eligible jobholders do not need to be automatically enrolled into a workplace pension. However, they have the right to opt in to an automatic enrolment scheme, if they choose, so an employer still has duties in relation to them.
An employer must give their non-eligible jobholders certain information about opting in to an automatic enrolment scheme and what this means for them.
The employer must give this information to the non-eligible jobholder within six weeks of the later of:
- The employer’s staging date; or
- The non-eligible jobholder’s first day of employment.
This requirement does not apply if the employer has previously given this information to the person concerned.
If a non-eligible jobholder chooses to opt in to a pension scheme, they must do so by giving an “opt-in notice”. On receipt of a valid opt-in notice, the employer must enrol the non-eligible jobholder into an automatic enrolment scheme by following the automatic enrolment process. The employer will then need to pay employer contributions to the scheme and deduct contributions from the jobholders pay and pay these to the scheme.
Entitled workers
‘Entitled workers’ is a phrase used for workers who are not eligible for automatic enrolment but can choose to join a pension scheme.
Entitled workers are either:
- Aged between 16 and 74; and
Working or ordinarily work in the UK under their contract; and
Have qualifying earnings payable by the employer in the relevant pay reference period but below the earnings trigger for automatic enrolment.
Or
- Aged between 16 and 21, or state pension age and 74
Working or ordinarily work in the UK under their contract
Have qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for automatic enrolment.
Entitled workers do not need to be automatically enrolled into a workplace pension. However, they have the right to join a pension scheme, if they choose, so an employer still has duties in relation to them. The pension scheme the employer chooses to use can be a different scheme to the one they may be using for automatic enrolment.
An employer must give their entitled workers certain information about joining a pension scheme and what this means for them.
The employer must give this information to the entitled worker within six weeks of the later of:
- the employer’s staging date; or
- the non-eligible jobholder’s first day of employment.
This requirement does not apply if the employer has previously given this information to the person concerned.
If an entitled worker chooses to join a pension scheme, they must do so by giving the employer a “joining notice”. On receipt of a joining notice, the employer must then arrange membership of a scheme for them.
The employer will then need to deduct contributions on behalf of the entitled worker and pay these into the scheme. However, the employer does not have to pay into the scheme themselves, unless they choose to do so, or have chosen a scheme that requires an employer contribution.
Money deducted from pay
A percentage of the workers’ pay will be deducted automatically by the employer every payday. This together with contributions from the employer and the government will be paid into the workers’ pension pot. The employer needs to pay the contributions to the pension scheme within a specified time limit. Contributions must be paid to the pension pot no later than 22nd day (19th if paid by cheque) of the month after the deduction from pay was made.
The money is normally invested within the pension pot by the pension scheme administrators. Sometimes employees have a say into what type of investments the pension pot holds, and sometimes the investments are decided on by the pension scheme administrator.
How much will the contributions be?
The minimum the employer pays into the workers pension pot is 1% of their ‘qualifying earnings’ which will rise to 3% by 2018. The minimum amount that will be deducted from your pay and paid into your pension pot will be 0.8% of your “qualifying earnings” which will rise to 4% by 2018. The government pays into your pension pot 0.2% of your ‘qualifying earnings’ which will rise to 1% by 2018.
Further guidance is available from the Pensions Regulator.
Article contributed by ACCA