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Posted by on Jul 1, 2013 in Small Business | 0 comments

What You Need to Know about Auto-Enrolment

What You Need to Know about Auto-Enrolment

According to new UK government legislation, as of October 2012 employees will be automatically enrolled into the workplace pension of their employers. Hoping to be gradually implemented across the next five years, the scheme will see eligible employees enrolled as standard, and mandatory contributions will be applied by the employer.

Currently, large firms are implementing the practice, and it is hoped that smaller firms will follow suit after complications are ironed out.

Who will be automatically enrolled?

It will become mandatory for companies to automatically enrol employees who are:

  • Over the age of 22
  • Below the state pension age (the exact age is to be reviewed every five years)
  • Earning more than £7,475pa
  • Working in the UK
  • Not already in a qualifying pension scheme

Employees have the right to be taken onto the scheme even if they do not qualify to be automatically enrolled.

It is hoped that the practice of automatically enrolling employees onto a pension scheme will combat the fact that many employees don’t make the application themselves, and thus lose out on pension benefits.

How much will be paid into a pension pot?

The government has laid out a set of rules regarding the contributions into the pension pot.

Tax relief is worked out as a percentage of your earnings. In essence, some of the money that would normally have been given to the government by way of tax instead goes to the pension pot.

There is a minimum percentage which has to be contributed in total; that’s taking into account your contribution, employer’s contribution and tax relief. That amount will be increasing between now and October 2018. At present, it’s looking to be about 2% minimum, but it’s looking to go up to 5% by October 2017.

The minimum percentage to be contributed by an employer is currently set at 1%.

Is complying essential?

For an employee; no it’s not. If you don’t want to be part of the scheme, you can opt out by completing a form to do so within three months of being enrolled.

Every three years, opted-out employees will be automatically enrolled again – but once more, they can make the decision not to be involved. Employers will not be allowed to give preference in a job interview situation for potential employees who would opt out.

For employers, it’s obligatory to implement the auto-enrolment scheme once the government has asked them to do so. Any companies failing to bring on the scheme will face a fine, which can escalate to as much as £10,000 a day.

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