From the relevant staging date, all workers must be auto enrolled into a qualifying pension scheme by their employer. Employers can choose which scheme they use but it must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it.
Employers must therefore:
• make a minimum 3% contribution is made towards a defined contribution scheme (based on qualifying pensionable earnings) such as NEST (see below); or
• offer membership of a defined benefit scheme or certain hybrid scheme which either has a contracting out statement or meets the test scheme standard
One qualifying scheme that has been set up specifically for an employer to use so that he meets his new obligations is called NEST (National Employment Savings Trust) and is available to any employer who wants to use it. However, use of this is not compulsory, as long as the pension scheme used counts as a ‘qualifying’ one.
Employers who currently use a pension scheme should therefore check that it counts as a qualifying scheme. If it does, then they can continue to use it under the pension reform. If it isn’t, then they should check how the existing scheme can be amended, or set up a new scheme.
Not all workers must be auto enrolled – only ‘eligible’ workers must be. ‘Eligible’ workers are those who:
• are 22 years old and over
• are under state pension age
• earn more than the minimum earnings threshold (likely to be £7475 per year); and
• work or ordinarily work in the UK
However, other individuals will have the right to be enrolled into their employer’s pension scheme if they ask to be. These are:
• jobholders aged between 16 and 22, or between State Pension Age and 75 with earnings of more than £7,475 a year. If these individuals ask to be enrolled their employer will have to make a minimum contribution.
• workers aged at least 16 but who are under 75 and who do not have earnings of more than £7,475. If these individuals ask to be enrolled their employer will not have to make a minimum contribution, but it can if it chooses.
Once a worker has been automatically enrolled, they can choose to opt out in which case they will no longer be a member of the scheme and any payments made into the pension pot will be refunded. Opting out can only be done within a month of being auto enrolled. Opted out workers may re-join at a later date.
After the opt-out period, workers can choose to leave the pension scheme at any time. Payments already made in this circumstance will not be refunded and will remain in their pension pot.
Workers who have opted out or left the scheme must be auto enrolled again ever three years as long as they continue to be an ‘eligible’ worker.
Who should be automatically enrolled?
Fiona is aged 27 and earns £37,000 per year.
Fiona’s employer is required to automatically enrol her because of her age and her earnings level. Her employer must make at least the minimum contribution.
Raj is 20 and earns £17,000 per year.
His employer is not required to auto enrol him because he is not old enough. However, Raj can ask his employer to put him into the workplace pension scheme and will have to make a contribution to his pension.
Peter is 42 and earns £25 a week.
Peter’s employer is not required to automatically enrol him because he doesn’t earn enough.
However, Peter can ask to be enrolled but his employer does not have to make contributions, but can do so if they wish.