Auto-enrolment has been recommended for the provision of pensions for employees. This will ensure that employees are automatically registered to join a workplace pension structure. These proposals will provide a workable solution for small businesses that have only started to offer their employees with a workplace pension scheme. Employees and employers can contribute to a workplace pension.
Minimum Employer contributions
These DWP proposals are for 2017-2018 tax year. There are clear recommendations with regards to the minimum contribution an employer is required to contribute to an employee’s workplace pension. These are based on an employee’s ‘qualifying earnings’. This essentially means any employee who is 22 years of age or over (up to State pension age) and earns £10,000 a year or more will be Auto-Enrolled. Employees are permitted to receive employer contributions as well as making their own contributions.
When Auto-Enrolment does not automatically occur
There are several instances when Auto-Enrollment will not occur.
- When an employee is 22 years of age or over (up to State pension age) and earns £5,876 -£10,000 a year. They can request registration and are entitled to employer contributions
- When an employee is 22 years of age or over (up to State pension age) and earns up to £5,876 a year. They can be request registration but are not entitled to employer contributions
- When an employee is under 22 years old and earns £5,876 or more. They can request registration and are entitled to employer contributions
- When an employee is over the State Pension age and earns up to £5,876 a year. They can request registration but are not entitled to employer contributions
Minimum Employee contributions
As shown in the Table below there are various minimum employee contributions that will come into effect with a steady rise to the minimum contribution rate over the next two years.
For the 2017-2018 tax year, employees will contribute a minimum rate of 1% of earnings from £ 5,876 up to the £45,000. This rate will rise to 3% in April 2018 and then 5% in April 2019 with Parliaments approval.
Summary of current and predicted minimum contributions
|Employer Minimum contribution
|Total Minimum contribution
|Before 5 April 2018
|2%(including 1% staff contribution)
|6 April 2018 to 5th April 2019
|5%(including 3% staff contribution)
|6 April 2019 onwards
|8%(including 5% staff contribution)
Re-assessment of Employees Auto-Enrolment
Once an employer’s pension scheme is up and running, employees can be re-assessed each month to ascertain if they can be Auto-Enrolled. Note that after 3 years, an employee must be re-assessed to establish if they meet the criteria for Auto-enrolment into a workplace pension scheme. If an employee opts-out of registration into a workplace pension scheme then they need to inform the pension company and their employer in writing.