Automatic enrolment is a Government initiative to help more people save for later life through a pension scheme at work.
Automatic pension benefits for the employed
In the past, many workers missed out on valuable pension benefits, because their employer didn’t offer them a pension, or they didn’t apply to join their company’s pension scheme.
Automatic enrolment changes this. It makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also pay money into the scheme.
Automatic enrolment is being phased in, starting with the largest UK employers. So if you’re eligible (see below) and haven’t yet been enrolled into your workplace scheme, you should be by 1 February 2018, at the latest.
To be eligible for automatic enrolment, you must be
- At least 22 years old;
- Not yet at State Pension age;
- Earning a salary of at least £10,000* p.a. (under current rules);
- Normally working in the UK under a contract of employment
*This is known as the earnings threshold and you will be assessed for eligibility at each pay period. The earnings threshold will be pro-rated meaning the actual earnings threshold amount will differ if you are paid monthly, 4 weekly, fortnightly or weekly. As you are assessed for eligiblity at each pay period you may find that you are automatically enrolled if your earnings increase- if only for a short period.
For example, if you are paid monthly, you will be deemed to meet the earnings threshold if your monthly earnings reach at least £833. If you are paid weekly you are deemed to meet the earnings threshold if your weekly earnings reach at least £192.
You will receive tax relief on your contributions. If you're not eligible, you can still ask to be put into a pension scheme and your employer may pay into it.
For employers who don’t already run a suitable pension scheme, and don’t want to set one up, there is a Government-backed scheme they can use instead. This is called the National Employment Savings Trust (NEST).
Opting out of automatic enrolment
The rules about joining, leaving and how you invest your money are similar to other types of defined contribution schemes.
Automatic enrolment puts you into the scheme, but it’s up to you if you wish to leave the pension scheme. This is referred to as opting out. There are time limits for opting out and getting a return of your contributions. It's possible to opt out at any other time but your contributions and those of the employer will remain in the pension scheme. If you do decide to opt out, it’s important to remember that your employer will be required to put you back into the scheme every three years. The employer would only re-enrol you if you still meet the automatic enrolment criteria
Is every worker eligible to join?
If you are not already in a qualifying workplace pension scheme, you will be automatically enrolled into a pension scheme if you meet the following criteria;
- You are aged between 22 and State Pension age
- You earn at least £10,000 per year
- You usually (‘ordinarily’) work in the UK
If you do not fit the above criteria you will still have the option to join your employers workplace pension scheme and in some cases your employer may even contribute. You should check this with them.
I have been told that I must join the pension scheme. Why is it compulsory?
Although you must be enrolled into the scheme if you meet the criteria, it's not compulsory to stay in it. You can choose to opt out at any time. If you opt out within one month, any contributions you have already made will be refunded, as if you had never joined. If you opt out after this, the type of scheme your employer sets up will determine whether you receive an immediate return of contributions, less any deductions, or a preserved pension.
I have various deferred pensions with various ex-employers. Can I transfer these previous benefits to my employer’s pension scheme?
It depends on what type of scheme your employer decides to use for automatic enrolment. The National Employment Savings Trust (NEST) does not currently accept transfers from other pension schemes.
Most other pension schemes may accept transfers in, but there is no compulsion for them to accept them, other than a stakeholder pension scheme, and, if they do, there may be a minimum transfer value they will accept. You should check this with the scheme’s administrator.
My employer is a charity and we were told that we might be exempt from the automatic enrolment regulations. Is this correct?
Normally no employer is exempt from the regulations. There are limited exemptions, such as members of the armed forces and one person companies where the individual is also a director. If automatic enrolment applies, you should sign up to The Pensions Regulator emails to receive help and guidance. In addition, the employer must complete a declaration of compliance when it has automatically enrolled its workers and, hence, fulfilled their legal duties.
I have just found out I am to be automatically enrolled but do not have much information other than this. When should I get more information?
Your employer is obliged to automatically enrol eligible workers into a qualifying workplace pension scheme once the employer has reached what is known as their staging date. Your employer must provide you with the information about your automatic enrolment within six weeks of your automatic enrolment date.
You can't opt-out of automatic enrolment but can opt-out of membership of the scheme, after you have been enrolled, by completing the opt out period within the required time limits. Your employer is therefore obliged to deduct the first pension contribution from your earnings. If you opt-out, your refund should be made within one month of your valid opt-out notice being received or, your first pay day following this one month period.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.