Auto enrolment is an initiative introduced by the government to require all employers to provide a workplace pension scheme in order to help their employees save for retirement.
Prior to the introduction of this initiative, many employees were losing out on vital pension savings, either because they had failed to join their company’s pension scheme, or because their employer didn’t offer one.
Enter the auto enrolment initiative, which made it compulsory for employers to provide a workplace pension scheme, enrol all eligible employees and pay a minimum contribution into their pension pots.
The process was phased in from 2012, with all eligible workers due to have been automatically enrolled by 1 February 2018.
Employees: what contributions do I and my employer have to make?
The government has defined the minimum contribution payments that you and your employer must make into your company’s pension scheme.
Your employer must pay a minimum contribution and it’s up to you to make up the rest to meet the total minimum contribution – your employer will tell you how much you need to contribute.
You’ll also receive government tax relief on your contribution, meaning that they will effectively be contributing to your pension as well. Even if you don’t pay Income Tax, you’ll still benefit from this tax relief if your workplace pension uses tax relief at source.
The minimum amount you have to pay into your scheme is usually based on what is known as your ‘qualifying earnings’ – i.e. all your earnings before Income Tax and National Insurance is deducted from your salary. Lower and upper thresholds, set by the government and regularly reviewed, determine what your qualifying earnings should be.
The below table shows what your minimum contribution would be as a percentage of your qualifying earnings, if your employer contributed only the minimum amount:
|Date||Your employer pays:||You pay:||The Government adds tax relief of:||Total contribution:|
|From 6 April 2019||3.0% of your qualifying earnings||4.0% of your qualifying
|1.0% of your qualifying
|8.0% of your qualifying
Employers – what are my duties?
Any employer with at least one member of staff is legally obliged to enrol all eligible employees into a workplace pension scheme and pay in the minimum contribution, as stipulated by the Pensions Act 2008.
Your responsibilities will depend on whether or not you have eligible employees who need enrolling into a scheme. If you’re not sure, visit the Pensions Regulator website, which has an online tool that will tell you what needs to be done to comply with auto enrolment requirements.
The responsibilities associated with automatic enrolment don’t end when you enrol a staff member. Every time you pay your employees’ salaries, you’ll have to:
- monitor changes to the age and earnings of previously ineligible staff in case they need to be enrolled
- pay the correct contribution into the pension scheme
- handle employee requests to join or opt out of the scheme
- keep up-to-date records
Finally, you are obliged to re-enrol staff who have left the scheme every three years.
Pensions are a long-term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore, the tax treatment of pension benefits can and may change in the future.