To encourage workers to start building up retirement benefits, the Government introduced pension reforms that requires all employers to offer workplace pension schemes and to enrol all eligible workers into their schemes. This has become known as auto enrolement.
Automatic enrolment has been designed so that eligible workers who want to build up retirement savings don’t have to take any action themselves – employers will automatically enrol eligible workers into a workplace pension scheme and deduct any contributions that the member is required to pay from their wages or salary, and then pay into the pension scheme on their behalf. Whilst this is ofcourse a great solution for employees - helping them save for retirement with little or no hassle, it understandably requires a lot from employers which can be a pretty daunting task for those who are unfarmiliar with the requirements. Which is exactly what we're here to help with.
And having successfully helped a range of employers set up and keep on top of their auto-enrolement requirements since 2012, we're confident we'll do a DAM good job.
What are the minimum contributions?
The minimum total contributions under automatic enrolement have been set down by the Government and have been increasing up until 6 April 2019. As an employer you must pay some of the minimum total contribution. If you don't pay all of the minimum contribution, the employee will have to make up the difference. Currently the minimum contribution rates are 3% employer and 4% emloyee. The Government will also pay into the pension pot by giving tax relief on the employee contributions (1% based on employee contribution of 4%). The minimum total contribution to the scheme are usually based on the employees ‘qualifying earnings’.
Currently, the lower level of qualifying earnings is £6,136 and the higher level is £50,000 meaning any income in between these rates is what the employer and employee contributions will be based on. For example, if an employee earns £20,000 their qualifying earnings would be £13,864.
How can DAM help with automatic enrolment?
Whilst you will now be required by law to have an auto-enrolement scheme in place, it is important to note that setting the scheme up is not the end of your responsibility as employer - your role extends to ensuring you are meeting your legal duties for automatic enrolment. If you don’t comply, you may face enforcement action including compliance notices, and penalty notices so it's important you keep on top of the ongoing compliance.
As well as advising on the most cost-effective way to continue to carry out your auto enrolment duties, we’ll keep you up-to-date with all of the compliance aspects, notifying you of which forms need filled out and when, as well as what data must be collected - every three years, for example, you are required to re-enrol all eligible employees into the scheme (even those who opted out in the past).
We’ll also help you with one of the trickiest parts of the auto enrolment journey: communicating any changes with your employees. Quite simply, we’re there whenever you need us.
Every business we have helped with auto enrolment so far has gone through the process without any problems, proving that DAM can be trusted to give expert auto enrolment advice.
Will all staff be automatically enrolled? And what happens if they chose to opt out?
If you're employees are aged between 22 and state pension age and earn at least £10,000 from one job, they will be automatically enrolled in the pension scheme, unless they actively chose to opt-out. If they opt out of the scheme within one month of being automatically enrolled, they will be treated as if they had never joined the scheme, and any money that they personally paid into the scheme will be refunded in full.
However an opt-out from the pension scheme normally only lasts for three years. If any of your staff have opted out, or stopped contributions to the scheme, you are required to automatically enrol them into the scheme at a later date (normally every three years), if they are still an eligible jobholder at that time. If they're still not ready to join the scheme or start paying contributions, they can decide to opt out for a further three year period however due to the employer and government contributions they will miss out on if opting out, employees should always be encouraged to remain an active member of the scheme.