Understanding Auto Enrolment

From October 2012 some employers will be required to automatically enrol those workers who meet certain criteria into a workplace pension scheme.  Starting from this date, employers will need to enrol all eligible members of staff into either the National Employers Savings Scheme (NEST) or a suitable alternative workplace pension.  They will also be required to make contributions to this pension.

The automatic enrolment process will be rolled out across the UK from 1st October 2012 to 1st September 2018, with larger employers being the first to take action. Employers can choose the pension schemes they want to use provided that they meet certain criteria.

Who will qualify for auto enrolment?

All jobholders working in Great Britain who aged between 22 and the State Pension age and who are earning more than £8,105 per year (which is the tax income threshold for 2012) will need to be automatically enrolled into NEST or an alternative qualifying workplace pension.

What is the minimum contribution?

Under the NEST scheme employers must contribute 3% on a qualifying band of earnings (from £5,564 up to £42,475) for eligible employees. The overall contribution will be around 8% in this type of scheme as jobholders will also contribute plus they can expect around 1% in the form of tax relief.

Which scheme can employers use?

Employers will be able to choose the pension scheme(s) they want to use provided the scheme(s) meet certain quality criteria (including any current scheme). These may be based on contributions or benefits people receive.

Can employees that don’t qualify opt in to the scheme?

Any employees aged between 16 and 22 or state pension age and 75 earning more than the qualifying minimum can opt in to their employer’s workplace pension scheme and qualify for the minimum employer contributions. Those employees who are earning below the minimum qualifying amount can still opt in although their employer will not be obligated to make a contribution.

To help employers the contribution levels will be phased in beginning at 1% and increasing up to 3%.

For more information on auto enrolment and workplace pensions please contact our friendly team on 0844 417 9517 for independent pension advice.


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