Pensions Auto Enrolment 2013-14

From October 2012, employers will be legally required to enrol their employees into a qualifying pension scheme. Eventually both the employer and employee will be required to make contributionsto the scheme.  The aim is to ensure that those employees on low to moderate earnings who are not currently making provision for their pensions begin saving for their retirement. 
 
A new workplace pension scheme called NEST (National Employment Savings Trust) will be one of the qualifying schemes and will be open to any employer who wants to use it to meet their obligations.
 
Start Date
The initial roll out of the scheme will start in October 2012 but this will impact on employers with 120,000 employees or more. For those with a smaller workforce the start date varies; for example, those with less than 500 employees the date is 1 January 2014 and for those with less than 50 employees the earliest start date is 1 March 2014.
 
The allocated start date will be based on the size of the employer's PAYE scheme on 1 April 2012.  New employers who set up after 1 April 2012 and before 1 April 2016 will have a start date between March and September 2016.
 
The basic concept of the new rules is compulsory employer/employee pension contributions.
 
A key requirement will be to automatically enrol certain workers, known as eligible jobholders, into a pension scheme that meets specific conditions to be an 'automatic enrolment scheme'.
 
For all employers, compliance with the new rules is compulsory, so it is crucial that employers understand how their workforce will be categorised under the new legislation.
 
Eligible Jobholders
These are workers who:
Ø are aged between 22 and state pension age;
Ø are working, or ordinarily working, in Great Britain (there are similar rules for N Ireland) and;
Ø have qualifying earnings payable by the employer in the relevant pay reference period (usually
      the normal pay period) that are above the earnings trigger for automatic enrolment (currently
      £7,475).
 
They are eligible for automatic enrolment but can opt out.
 
Employers continue to have responsibilities towards individuals who have opted out, including automatically re-enrolling them, broadly every three years.
 
If an eligible jobholder is already an active member of a qualifying scheme on their automatic enrolment date, the employer does not need to take any further action (other than to provide them with the information about the scheme of which they are a member).
 
An employer will need to pay their own pension contributions, as well as the jobholder's contributions, to the automatic enrolment scheme.
 
Minimum Contributions Levels for Qualifying Defined Contribution Scheme
Minimum Contribution     8%
Employee Pays             4%
Tax Relief                    1%
Minimum Employer Pays  3%