Business Finance: John Matthews explans the auto-enrolment pensions reform

Under the scheme employers are required by law to automatically enrol eligible employees into a Workplace Pension. The Pensions Regulator will ensure employers comply and there are staging dates for enrolment depending on the size of the company. In addition, there are minimum contribution levels for both employers and employees.

In summary, every employer (depending on the staging date) will have to enrol into a workplace pension those employees who:

Are not already in a workplace pension scheme;

Are at least 22 years old;

Have not yet reached State Pension age;

Earn more than the minimum earnings threshold (currently £9440 per annum);

Work or ordinarily work in the UK.

Employees can opt out but if they do after the start of the scheme they may find any contributions they have accumulated will remain with the scheme. They can re-join at a later date if they wish.

Finally, the employer has a duty to automatically enrol employees back into the scheme approximately every three years. This gives those who have left the scheme the opportunity to reconsider their pensions saving.

The staging dates are:

Employers with 250 + employees = Oct 2012 – Feb 2014

Employers with 50 – 249 employees = Apr 2014 – Apr 2015

Employers with 49 employees or less = Jun 2015 – Apr 2017

New Employers after April 2012 = May 2017 – Feb 2018

The contributions are:

Timing Min Contribution

Employer Employee

Oct 2012 to Sep 2016 1% 1%

Oct 2016 to Sep 2017 2% 3%

Oct 2017 onwards 3% 5%*

*Including 1% tax relief

The above is a very brief overview of the new arrangements but you can see that as well as the obvious cost implications there is an additional administrative burden to ensure compliance with the regulations.

Early planning for the introduction of the scheme is therefore advisable to ensure the right systems are in place and you are fully aware of the costs.

: : John Matthews is a partner at Ensors Chartered Accountants.