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 £7,475.  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 2017 this will increase to 5%, with at least 2% from the employer. Finally, from October 2018, 8% will need to be paid with at least 3% from the employer.

*The band of earnings, in 2010/2011 earnings terms, are £5,715 to £38,185, and include basic pay, bonus, commission, overtime and statutory payments (such as sick pay and maternity pay).

LARGE & MEDIUM EMPLOYERS (more than 50 employees)

SMALL EMPLOYERS (less than 250 employees)

Tax and legislation are liable to change. This information is based on Almary Green's current understanding of UK law and HM Revenue & Customs practise and legislation we believe may apply in the future.

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