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The Changing Face of Auto-Enrolment
It’s been a little more than five years since the government introduced auto-enrolment and shook up the pensions landscape for employers and employees across the UK. Since October 2012, more than nine million people have been enrolled into schemes and the journey has been predominantly positive for all involved.
However, employer’s duties and ongoing scheme management continue. From October 1 2017, the law states that if you become an employer for the first time, you are required to automatically enrol your workers immediately into a workplace pension and complete a declaration of compliance. This is provided that the employee is at least 22 years old and earns more than £10,000 a year.
An Increase in Contributions
It can be a challenge for employers to keep up with the evolving auto-enrolment requirements and there are some significant changes imminent.
From 6 April 2018, auto-enrolment will see an increase in minimum contributions from 2% to 5% on qualifying earnings (between £6032 and up to £46350 annually), with 2.4% coming from the worker, 2% from the employer and 0.6% tax relief. There will barely be time to adopt the changes before the second phase of increases take place one year later.
On April 6 2019, minimum contributions will move again to a total minimum of 8% with the division of 4% (worker), 3% (employer) and 1% tax relief.
|Employer Percentage||Employee Net Percentage||Employee Gross Percentage|
|2017 – 2018||1%||0.80%||1%|
|2018 – 2019||2%||2.4%||3%|
From April 2018, this means employers making a monthly contribution of a minimum of £47.42 for an employee on a salary of £25,000, where £18,968 of the salary is pensionable. Employer contributions jump to £72.42 for an employee on a £35,000 (with £28,968 pensionable salary).
|From 6 April 2018 – 5 April 2019|
| Employer contributions
Preparation for contribution increases
Employers should make preparations to support employees and distribute clear communications, as well as ensure all contributions are deducted correctly and kept up to date with good record-keeping maintained.
This should avoid any misunderstanding and present a good outcome should the employer receive an inspection from The Pensions Regulator.
Re-enrolment & good governance
Those who commenced schemes in 2015 will need to undertake the third anniversary ‘re enrolment’ process in 2018 and once again be required to make a declaration of compliance. Alongside all of this, the pension regulator will intensify its random inspection programme and be looking out for close adherence to the six principles of good pension governance. Vintage advises and offers an annual ‘governance’ inspection and report to protect employers and check duties are being met and suitably recorded.
Understanding Opt-Out Rates
Another challenge presents itself with the view that opt-out rates among the younger generation are expected to rise with the introduction of increased minimum contributions. The 13th annual Scottish Widows Retirement Report shows that half of 22-29-year-olds will consider opting out of the scheme when contributions are increased in April.
This means employers may benefit from setting up workshops with Vintage Corporate to cover their employees’ needs, helping them to understand the benefits of early retirement planning and generally support them throughout the step up in contributions.
New Business Owners and First-time Employers
For business owners who became employers after 1 October 2017 for the first time, auto-enrolment becomes an immediate requirement with the ‘duties start date’ matching the first day the first employee starts work.
It’s essential to conduct an assessment of all employees to calculate possible pension contributions.
Many payroll software programs are compliant with auto-enrolment requirements to automatically assess staff, ensure the correct contributions are made and help the overall process run smoothly. It can also be useful for employers to nominate a member of staff to oversee the auto-enrolment process and liaise with the payroll team and pension advisers.
In some cases, company directors and employees may be exempt from auto-enrolment responsibilities. It is important to be vigilant as each case varies and the key information is in the finer details.
For example, if all of your staff earn less than £116 per week/£502.66 per month, the business may not be required to set up a PAYE scheme. However, employers are still required to communicate with their team to inform them of the concept of auto-enrolment and how it applies to them. If any member of staff wishes to be placed into a pension scheme, it becomes the employer’s duty to arrange enrolment.
Crucially, the employer will not be required to pay into the scheme in such cases. However, employers must be still be aware of their responsibilities and potential duties should the situation change, or any employee receive a pay rise that takes them over the £116/week threshold.
In some cases, company directors may also be exempt from auto-enrolment duties. This is applicable where they are the sole director, when they only have other directors working for them none of whom have an employment contract and a handful of other unique situations. As always, it’s important for employers to read the fine print or seek advice to avoid falling short of their duties.
For advice on how to make sure that you are meeting your auto-enrolment duties as an employer, contact Vintage Corporate today on 020 8371 5232 or email firstname.lastname@example.org . And don’t forget to follow us on Twitter to keep up to date with all the latest news affecting employers and their staff in the UK today.