In 1901 there were 10 people working for every pensioner in the UK. By 2050 it is expected that this will change to just 2 workers. The UK population is living longer but doing less to financially prepare for retirement.
On 30 June 2012, new laws came into force beginning a new requirement for all employers to automatically enrol eligible workers, referred to as jobholders, in a workplace pension scheme. Employers will be able to use an already established scheme, set up a new occupational or personal pension scheme or enrol their eligible jobholders in NEST, a central scheme set up by the government.
In order to be eligible, a jobholder must be at least 22 years old and not have reached state pension age. Their earnings must also exceed the earnings trigger for that year, set at £9,440 per annum for the tax year 2013/14. Obviously, the jobholder must also not already be a member of his employer’s qualifying pension scheme.
A jobholder will be free to opt out the scheme once he has been automatically enrolled, however, those who have opted out will be automatically re-enrolled every three years and will then have to opt-out again. If a jobholder wishes to opt back into the scheme, he can do so but only once in any 12 month period.
The auto enrolment pension scheme is being gradually rolled out over a five and a half year period starting on 1 October 2012. When an employer has to comply with the new law depends on how many workers they have in their PAYE scheme as at 1 April 2012.
Broadly companies with more than 250 jobholders will have to implement auto enrolment between October 2012 and February 2014; those with between 50 and 249 jobholders between April 2014 and April 2015 and those with less than 50 jobholders with not have to implement auto enrolment until after June 2015. Employers can however choose to comply earlier.
If an employer auto-enrols its eligible jobholders in a qualifying scheme, it must pay contributions of 3% of that jobholders earnings each year, although this requirement will be phased in over five years. Jobholders will be required to contribute 5% of band earnings, again to be phased in over five years so that by 1 October 2018, a sum equal to 8% of each jobholders earnings will be being paid into the pension scheme each year.
About the author:
Helen Paull is a newly qualified solicitor at Lindleys Solicitors specialising in company/commercial law and commercial property matters.