Thanks to a new government shakeup, the work pension scheme is set to change over the next five years.
As of October last year, the practice of auto-enrolment is being phased into businesses all over the UK. Quite simply, the new legislation will see the mandatory enrolling of employees onto a workplace pension scheme, and essential contributions paid by the employer.
At present, large firms are taking on the new rules and smaller companies are expected to follow suit over the coming years. The gradual phasing is meant to help iron out any complications before it is implemented fully.
Who is applicable?
Employees can be expected to be automatically enrolled if:
- They are over the age of 22
- They are below the state pension age (this age is reviewed every five years)
- They earn above £7,475 pa (thus, this applies to part-time workers)
- They work within the UK
- They are not already in a qualifying work pension scheme
If an employee does not want to be enrolled, they are entitled to opt out of the scheme within three months after the start date. Employees will then be enrolled again within three years or if they take new employment elsewhere, but again they are able to opt out.
It is hoped that the scheme will encourage more workers to take on a pension without the confusion that applying usually provides.
How much will be paid?
The government has already stipulated rules regarding input into the pension pots of employees.
By law, an employer is expected to contribute a minimum amount to the pot. There is a minimum percentage that must be contributed in total: taking into account an employee’s contribution, employer’s contribution and tax relief.
By October 2017, the total percentage will be 5%. At present, the minimum percentage for an employer to contribute is 1%.
Is complying essential?
As previously mentioned, an employee does not have to stay enrolled as long as they express their wishes to be taken off the program within three months of its start.
For employers, there is no option. The auto-enrolment scheme is obligatory once the government has requested a company to apply it to their pension scheme. Not doing so will incur a fine, sometimes of up to £10,000 for every day of non-compliance.
