Auto-enrolment: upcoming changes and planned extension
To encourage workers to start planning and saving for their retirement, the government introduced auto-enrolment in 2012. Auto-enrolment made it a legal requirement for UK employers to put eligible workers in to a pension scheme and make minimum employer pension contributions.
To allow businesses planning time for the new scheme, employers were phased in to auto-enrolment from 2012 to 2018 depending on the size of the business. From April 2018, all employers regardless of their size will be subject to the requirement to automatically enrol eligible workers in to pension schemes. Employers will have to identify which members of staff meet the eligibility criteria and then take steps to enrol these in to their pension scheme.
Employers also need to be aware of the upcoming minimum contribution rate changes. Since auto-enrolment was introduced in 2012, the contribution rates have been legally set at 1% for employees and 1% for employers. These will increase in April 2018 to 3% for employees and 2% for employers. A further increase will take effect from April 2019, when the minimum employee contribution rises to 5% and the minimum employer contribution rises to 3%. These will be further reviewed in the future.
It is crucial employers are complying with the auto-enrolment legislation. The contribution increases are taking place amongst a visible stepping up of enforcement action by The Pensions Regulator (TPR). TPR have powers to investigate whether employers are meeting their auto-enrolment obligations and can prosecute those who fail to do so. A number of businesses are currently facing legal action in the civil courts.
In a move to reduce the number of workers who are still under-saving for their retirement, the government will take future steps to extend auto-enrolment. This includes lowering the minimum auto-enrolment age from 22 to 18 to introduce an additional 900,000 younger workers in to workplace pensions, helping to save an additional £800 million.
Currently, pension contributions are deducted once the worker earns £5,876. The government intends to amend the rules to start calculating pension contributions from the first pound earned by the worker, rather than requiring them to reach the lower earnings limit. This will enable workers with a number of smaller jobs that don’t meet the contribution threshold to start making auto-enrolment pension contributions.
These recommendations are expected to be introduced by the government in the 2020s. Once in force, it will become more important that employers understand their obligations under auto-enrolment legislation to avoid prosecution.
Need advice on auto-enrolment, including eligibility of workers or minimum pension contributions? Call our Payroll Team today for expert advice.