Questions and answers for employers.

Auto enrolment is part of a Government initiative to increase private retirement savings. It is the process where all eligible employees are automatically enrolled into their employer’s qualifying pension scheme.

The Government have introduced auto enrolment to ensure that people have enough money saved for their retirement. This is due to a number of factors:

• We’re living longer means that we have an ever-increasing proportion of people of retirement age, compared to those of working age.
• A large number of the UK working population are not saving enough for retirement or taking advantage of private pension schemes that may be on offer.

Auto enrolment began on 1 October 2012. To help businesses prepare for the administration changes and costs it is being introduced in stages. Larger employers started to auto enrol their employees in 2012.

Employers with fewer than 250 employees will start to stage auto enrolment from 1 April 2014; all employers will be subject to auto enrolment by 1 February 2018.

You will only have to auto enrol your eligible employees, that is anyone aged between 22 and state pension age whose earnings are over the income tax personal allowance (£9,440 a year for 2013/2014). Minimum contributions will be based on income of a range of ‘qualifying earnings’ above £5,668, and up to £41,450 for 2013/2014.

You will not have to auto enrol employees who are not eligible. If employees wish to join and they are aged between 16 and 74, then you will also be required to contribute if they earn more than the threshold a year (£5,668 for 2013/2014). If they earn the threshold amount a year or less, they can still join but you do not have to contribute.

An ‘auto enrolment qualifying pension scheme’ needs to meet certain minimum criteria in relation to contributions and benefits and must have the ability for employers to auto enrol without requiring employees to join themselves.

In addition to this, an auto enrolment qualifying scheme must also:

• have a default fund available;
• be able to support you with appropriate disclosure of information;
• allow non-eligible employees to opt in; and
• allow employees to opt out within the opt out period.

The minimum contributions required by you and your individual employees, will be phased:

• From 1 October 2012 – 30 September 2017, the total yearly contribution will be set at 2% of qualifying earnings, with you having to contribute at least 1%.
• From 1 October 2017 – 30 September 2018 this will increase to a total pension contribution of 5% with you having to contribute at least 2%.
• From 1 October 2018 onwards, the total minimum contribution will be 8% with you having to contribute at least 3%.

The difference between what you must pay and the total minimum contribution is made up by the employee, plus some tax relief from the Government.

The contributions will be invested according to the default fund that you will choose when setting up your scheme with your pension provider. This is the fund into which all eligible employees will be enrolled. If you offer investment choices to your employees, however, the employee may opt to enrol into an alternative fund. You can choose an appropriate pension scheme that offers investment choices to meet your obligations.

If your company already offers an employee pension scheme you will need to check that it meets all the Government criteria for auto enrolment:

• A personal pension plan/stakeholder pension scheme with contributions of at least the minimum percentage of qualifying earnings.
• A final salary pension scheme. The minimum contributions mentioned above will not apply as long as the scheme provides a minimum level of benefits.
• A money purchase occupational pension scheme with contributions of at least the minimum percentage of qualifying earnings.

Any scheme must have the means to auto enrol eligible employees. If you don’t currently offer any scheme, or your current scheme does not meet the criteria, then you can either change your current scheme to fit the criteria or set up a new scheme.

If your current scheme is not suitable you may decide to close it. However, before you do, you must check the contractual rights of your employees and go through a consultation process with them. The new scheme that you set up must be suitable for auto enrolment.