Automatic Enrolment – now and after 2012
The Government’s pension reforms will introduce numerous new pension rules from 2012. Prime amongst them is the necessity for an employer to contribute to a pension for their employees for the first time and also the introduction of automatic enrolment.
What does automatic enrolment actually mean?
Auto-enrolment (as it will be more commonly known) means that employees will be a member of their employer’s pension scheme unless they actively decide to opt-out. So those that choose to do nothing will stay as members. Additionally, people who opt-out will have to be re-enrolled every three years. Auto-enrolment is likely to significantly increase membership of pension schemes.
Can I use automatic enrolment before 2012?
It depends on what type of pension scheme you have. If the scheme is an occupational pension scheme, then you are able to auto-enrol employees before 2012. However, if the scheme is what as known as a contract-based scheme – such as a group personal pension, group stakeholder pension or group self invested personal pension – then you can’t.
This is because of two European directives. The Distance Marketing Directive and the Unfair Commercial Practices Directive are there to protect customers from being misled into signing up for financial services contracts without being given the opportunity to fully consider the contract terms first.
After discussions with the EU, the Government believes automatic enrolment in contract-based schemes is consistent with EU law from 2012 onwards. The new interpretation recognises the difference between an employer sponsored scheme to which the employer contributes (workplace personal pensions) and individual personal pensions which have no employer involvement.
The automatic enrolment process from 2012
The Government's pension reform changes will start to be implemented from October 2012. New regulations confirm when employers will need to automatically enrol workers into a qualifying pension scheme - which depends on their size. The tables below show the exact date (known as the ‘staging date') by which employers must fulfil their responsibilities.
The employer must enrol all qualifying workers - broadly those between age 22 and state pension age who earn above £5,035. Employers can use a good quality private scheme, the new Government-sponsored NEST scheme, or a combination of the two, to fulfill their responsibilities.
Initially contributions need to be at least 2% of a certain band of earnings* with the employer paying at least 1%. From October 2016 this will increase to 5%, with at least 2% from the employer. Finally, from October 2017, 8% will need to be paid with at least 3% from the employer.
*The band of earnings, in 2006/07 earnings terms, are £5,035 to £33,540, and include basic pay, bonus, commission, overtime and statutory payments (such as sick pay and maternity pay). Assuming growth of 3.5% a year, the band limits will be approximately £6,200 and £41,200 in 2012.
LARGE & MEDIUM EMPLOYERS (more than 50 workers)
|
Employer (number of PAYE employees) |
Staging Date |
|
120,000 or more |
1 October 2012 |
|
50,000 to 119,999 |
1 November 2012 |
|
30,000 to 49,999 |
1 January 2013 |
|
20,000 to 29,999 |
1 February 2013 |
|
10,000 to 19,999 |
1 March 2013 |
|
6,000 to 9,999 |
1 April 2013 |
|
4,100 to 5,999 |
1 May 2013 |
|
4,000 to 4,099 |
1 June 2013 |
|
3,000 to 3,999 |
1 July 2013 |
|
2,000 to 2,999 |
1 August 2013 |
|
1,250 to 1,999 |
1 September 2013 |
|
800 to 1,249 |
1 October 2013 |
|
500 to 799 |
1 November 2013 |
|
350 to 499 |
1 January 2014 |
|
250 to 349 |
1 February 2014 |
|
240 to 249 |
1 April 2014 |
|
150 to 239 |
1 May 2014 |
|
90 to 149 |
1 June 2014 |
|
50 to 89 |
1 July 2014 |
SMALL EMPLOYERS (less than 50 workers)
|
Employer description: Last 2 characters in PAYE reference |
Staging Date |
|
92, A1-A9, AA-AZ, B1-B9, BA-BY, M1-M9, MA-MZ, Z1-Z9 or ZA-ZZ |
1 March 2014 |
|
BZ |
1 August 2014 |
|
00-01 |
1 September 2014 |
|
02-04 |
1 October 2014 |
|
05-07, 0A-0Z, C1-C9, CA-CZ, D1-D9 or DA-DZ |
1 November 2014 |
|
08-11, 1A-1Z, E1-E9 or EA-EZ |
1 January 2015 |
|
12-15, 2A-2Z, F1-F9, FA-FZ, G1-G9 or GA-GZ |
1 February 2015 |
|
16-20, 3A-3Z, H1-H9 or HA-HZ |
1 March 2015 |
|
I1-I9, I-IZ |
1 April 2015 |
|
21-25, 4A-4Z, J1-J9 or JA-JZ |
1 May 2015 |
|
26-31, 5A-5Z, K1-K9 or KA-KZ |
1 June 2015 |
|
32-38, 6A-6Z, L1-L9 or LA-LZ |
1 July 2015 |
|
N1-N9 or NA-NZ |
1 August 2015 |
|
39-47, 7A-7Z, O1-O9, OA-OZ, P1-P9 or PA-PZ |
1 September 2015 |
|
48-57, 8A-8Z, Q1-Q9, QA-QZ, R1-R9, RA-RZ, S1-S9, SA-SZ, T1-T9 or TA-TZ |
1 October 2015 |
|
58-69, 9A-9Z, U1-U9, UA-UZ, V1-V9, VA-VZ, W1-W9 or WA-WZ |
1 November 2015 |
|
70-83, X1-X9, XA-XZ, Y1-Y9 or YA-YZ |
1 January 2016 |
|
84-91 or 93-99 |
1 February 2016 |
|
Not described above, or with no PAYE scheme |
1 February 2016 |
NEW EMPLOYERS (set up after April 2012)
|
Employer description |
Staging Date |
|
PAYE income first payable between 1/4/12 and 31/3/13 |
1 March 2016 |
|
PAYE income first payable between 1/4/13 and 31/12/13 |
1 May 2016 |
|
PAYE income first payable between 1/1/14 and 30/9/14 |
1 June 2016 |
|
PAYE income first payable between 1/10/14 and 30/6/15 |
1 August 2016 |
|
PAYE income first payable between 1/7/15 and 31/3/16 |
1 September 2016 |
Tax and legislation are liable to change. This information is based on Almary Green's current understanding of UK law and HM Revenue & Customs practice and legislation we believe may apply in the future.
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