What is Auto-Enrolment?
You may have seen the adverts on the TV from the Department of Work and Pensions about workplace pensions by now, with lots of enthusiastic workers declaring “We’re all in!”, but what does auto-enrolment mean for you?
Why is Auto-Enrolment being introduced?
We’re living longer than before, and auto-enrolment is recognition that millions of workers have not saved enough for a comfortable retirement, or have underestimated how much they need to save, particularly those on lower incomes. The rationale behind the new auto-enrolment into workplace pensions is that all eligible workers are automatically opted in to a pension to encourage more people to save towards their retirement.
Does it apply to me?
If you’re an eligible worker, it’s good news. If you’re an employer, you’ll have some work to do: if you are in the UK and you have staff, you will need to automatically enrol all of your eligible “jobholders” into a workplace pension scheme. You’ll also have to make a minimum employer contribution into the scheme.
Who is eligible?
As an employer you must enrol all workers who meet the following criteria, and you must make an employer’s contribution to the pension scheme for those workers who:
- are aged between 22 and the State Pension age
- earn at or above the income tax personal allowance (from April 2014 this is £10,000 a year)
- ordinarily work in the UK
Directors and Auto-Enrolment
The Department on Work and Pensions refers to workers who must be enrolled as “jobholders”. But what about directors of a company? Are they counted as jobholders under the new rules?
Dividends don’t count as Earnings
Remember that dividends are not earnings, so if you are a director and you pay yourself a salary that is less than £10,000 a year then you do not have to be auto-enrolled by your company, even if you take the rest of your income as dividends. Bear in mind, though, that if you decide to pay yourself a bonus that takes you over that £10,000 limit in one year then you would bring yourself within the scope of Auto-Enrolment.
If you are a Director, you are classed as a jobholder if you are employed by your company under a contract of employment and you are not the only worker. This also applies to non-executive directors who have a separate employment contract. If you don’t fit this criteria then you aren’t classed as a jobholder for auto-enrolment.
Opting Out of Auto-Enrolment
Even if you are within the scope of Automatic Enrolment you can opt out but you only have 30 days from the time it first applies. If you’re not sure whether auto-enrolment applies to you but you don’t want to be enrolled then you should opt out anyway.
Next Steps
You should be gearing up now to put in place the compulsory pension schemes for your workers, and more information on key dates and your responsibilities as an employer can be found at the Department of Work and Pensions website, including details of your “staging date” for Auto-Enrolment.