By 2018, all UK employers will be required by law to automatically enrol eligible members of staff into a workplace pension scheme. The auto-enrolment system was initially introduced in October 2012 as a legal requirement for large organisations only, with smaller organisations phased into the scheme year on year. It will eventually be the obligation of all employers to establish their own pension scheme or use the government scheme set up specifically for this purpose.
Who is eligible?
Employers are required to enrol workers – both part-time and full-time – in a workplace pension scheme providing they meet the following criteria:
- The employee works in the UK.
- The employee earns more than £10,000 a year (tax year 2016-17)
- The employee is not already in a suitable workplace pension scheme
- The employee is at least 22 years old, but under State Pension age
Although all eligible employees must be automatically enrolled whether they want to or not, individuals can then choose to ‘opt out’ of the scheme at any time. However, the employer must follow the same process again to automatically enrol these workers in a pension scheme three years later.
Categories and employer contribution
Employees are assigned a particular category depending on their age and level of income. This category then determines whether or not the employer has to contribute to the pension, and how much they are due to pay in. Employers must initially contribute a minimum of 1%, but this level will increase to 2% from April 2018 – March 2019 and then 3% thereafter.
The law behind pensions
The Pensions Act 2008 is the main legislation covering workplace pensions.
- By 2018, all employers must automatically enrol their eligible employees in a workplace pension scheme.
- Once automatically enrolled, employees then have the option to opt out if they wish, however they must be automatically re-enrolled once three years has passed.
- Employer contribution is set at an initial 1%, rising to 3% as of April 2019.