UK Pension Regulations – Auto-Enrolment

UK Pension Regulations – Auto-Enrolment

November 16, 2016

In response to the new pension regulations which the UK government has introduced coming into effect from this year, we would like to inform all employers of their legal duty in complying with the new legislation and the consequence of non-compliance.

One of the main reasons for this legislation is to encourage employees to start paying into a pension scheme with the added incentive of receiving tax relief on the amount being paid.  Every employer with at least one member of staff must automatically enrol those who are eligible into a workplace pension scheme and contribute towards it.  It is compulsory for all employers.  This is known as Auto-enrolment.

Every employer who is currently operating payroll will obtain information from the Pension’s Regulator this will include a ‘staging date’ this is the date that the employer is legally obliged to start deducting pension contributions from eligible employees.

The first stage for the employer is to assess all their workforce to see which employees are eligible and should be automatically enrolled.  Any employees who are not automatically enrolled can choose to join or opt in to the pension scheme.

There are three different categories an employee may fall into:

  • Eligible Jobholder – Someone you must automatically enrol
  • Non-Eligible Jobholder – Someone who can opt in
  • Entitled Jobholder – Someone who can join

There is earning limits to determine who is automatically enrolled who can opt-in as detailed below:

Earnings Aged between 16-21 years 22 years -State Pension Age State Pension Age – 74
Less than £5,824 Can Join Can Join Can Join
£5,824 – £10,000 Can opt in Can opt in Can opt in
£10,000 and over Can opt in Auto-enrolled Can opt in

Once you determine who is eligible and who can join in – the employer must inform all employees of the changes including the date the changes occur; how the changes affect them and what they can expect to happen next.  Therefore, an employer may have up to three letters in which he can issue to employees as follows:

  • 1st letter for those who are automatically enrolled (Eligible Jobholder)
  • 2nd letter for those who choose to opt-in (Non-Eligible Jobholder)
  • 3rd letter for those who can choose to join (Entitled Jobholder)

If you are using a payroll package – standard letters will be available but need to be amended to suit your company’s details.

If an employee is eligible but does not want to join the scheme they must be automatically enrolled and processed for the first payment having the pensions deducted and paid over to the pension provider.  Once enrolled they need to inform the pension provider that they wish to opt-out, who in turn will then refund the pensions already paid.  The employee should receive notification from NEST and will be given a reference number – once received he/she can contact NEST to opt-out if they choose to.

In calculating the pension each pay period 1% of the employee’s salary (over the ‘qualifying earnings’ of £5,824 per annum) is deducted from their gross pay; the employer must also contribute 1% of the   employee’s pay.  This is then paid over to the pension provider (NEST Pension) who will hold this in the individual employee’s pension pot.  The government also contributes to this by giving tax relief on the employee’s contribution.

‘Qualifying earnings’ means that pension contributions are deducted from amounts over £5,824 per year which is £112 per week or £486 per month.

The level of pension contribution that employers will be required to make is due to increase from 1% to 3% by 2018 as shown in the table below:

Staging Date Up to 30 Sept 2017 Up to 30 Sept 2018 From 1 Oct 2018 onwards
Employer Contribution 1% 2% 3%
Employee Contribution 1% 3% 5%
Total Contribution 2% 5% 8%

As an employer who has to offer the NEST service to your employees (irrespective of whether they decide to avail of it or not) you are required to understand their terms and conditions.

We have enclosed a copy of the terms and conditions which will explain in more detail the following:

  • Explanation of the terms/words used by NEST;
  • Details of how tax relief is calculated on your pension contribution;
  • How payments are made to NEST by the Employer;
  • Details of NEST website and the Pension Regulator website where you can find more information;
  • Other requirements including how members can opt-out and details on how a member can cease making contributions.

Once employers are registered and setup with NEST you can submit a pension contribution schedule for each payroll run completed (this is details of what employees are enrolled and the amount of employee and employer pension deductions made); payments are made directly to NEST for the Pension deductions collected from employees via their website.

The employer must ensure that all ongoing auto-enrolment responsibilities are carried out.

(new employees are assessed when they commence employment with the employer and setup with NEST if they are Eligible Jobholder.)

Finally, the employer needs to complete a Declaration of Compliance with the Pension Regulator within 5 months of the staging date.  This is a form completed to advise the Pension Regulator that you as the employer has taken all the necessary steps to ensure the workplace pension scheme has been put in place.

Any employer who does not comply with their auto-enrolment responsibilities will be fined by the Pension Regulator!

Further information can be obtained on our website

Alternatively you can contact our Dundalk team on +353 42 93 39955