From 1st October 2012, every eligible employee will have to be auto-enrolled, without any active decision or participation on his or her part, into any form of qualified pension scheme offered and chosen by employer. Auto-enrolment aims to eliminate the common problem of workers failing to benefit from valuable pension scheme as they neglect applying for the employer offered pension scheme. Employees eligible for auto-enrolment are above the age of 22 years and earning above the income tax personal allowance during the year previous to 2012. Payment of contribution will be applicable on earnings between £5,035 and £33,540.
Before the employer is absolutely required to enroll employees, there will be a three month waiting period, during which the employee will have the right to decide to opt in the scheme and instantly start saving. In order to avoid the Christmas period, the employers will be given the option of starting auto-enrolment of employees as early as July 2012. Employees can also choose to opt out of the employer’s scheme during the formal opt-out period and can also get refund of any contributions made after auto-enrolment. Moreover, the employers will be provided the flexibility to re-enroll employees three months of the stated automatic re-enrolment date. The employer is the main person in charge of supervising and maintaining qualifying pension provision for new and current members of the qualifying pension schemes. Further duties or responsibilities of every employer with regards to auto-enrolment will be gradually introduced within the four years after 1st October 2012, keeping in consideration the size and the PAYE size of the employer.
The basic employer duties defined to come into force from 1st October 2012 include enrolling eligible workers into qualifying company pension schemes, choosing the qualifying pension schemes to avoid any additional prospective duties, and make a contribution of 3% minimum towards the qualifying defined contribution scheme or NEST (National Employment Savings Trust) or offer defined benefit scheme or any other hybrid scheme which meets the test scheme standards or has contracting out statement.
For employees with qualifying earnings between £5,035 and £33,540 automatically enrolled in defined contribution scheme or NEST, there will be a requirement of 8% minimum contribution. In case the employer is paying the minimum required contribution of 3%, the employee would have to pay 4%, and the remaining 1% would be paid by the government as tax relief. However, this minimum contribution requirement will be gradually raised to 8% during the period between October 2012 and October 2017. According to plans, during the four years after October 2012, which is till October 2016, the minimum contribution would be 2% of qualified earnings, with minimum 1% employer contribution. From October 2016 till October 2017, the minimum contribution requirement would be 5% of the qualified earnings, with the employer paying a minimum of 2%. Then, from October 2017 onwards, the total minimum contribution would be 8% with the employer’s minimum contribution being 3%.
If you want to find out more about how this affects you then get in touch with an IFA or try The Pension Finder above for more information.