Millions of people in the UK are not saving enough for retirement. To solve this, the government introduced legislation that means all employers must offer and automatically enrol their employees into a workplace pension scheme that meets minimum standards. The date employers must start complying with the new legislation is their staging date, and the Pensions Regulator has written to all employers informing them when their staging date is.
The minimum standards set out by the government state that the pension scheme must have a good quality default investment fund and low charges. Even employers who already provide a pension need to check if it complies with the new legislation, and if it can still be used.
Employers need to assess their employees to determine which of the following categories they fall into:
- Eligible jobholders
- Non-eligible jobholders
- Entitled workers
Eligible jobholders should be automatically enrolled into the new workplace pension and employers must make minimum contributions on their behalf. Non-eligible jobholders don’t need to be automatically enrolled, but they can choose to opt into the pension and if they do, employers need to make minimum contributions on their behalf. Entitled workers can also opt in, but employers are not obliged to make contributions for them.
Employees and self-employed
Workers who are aged between 22 and the State Pension age, work in the UK and earn at least £10,000 per year must be enrolled and your business must make an employer’s contribution to the scheme.
Employees don’t need to take action to be enrolled into the scheme and each employer has been given a staging date by which they need to comply with this new law. However, if you’re self-employed or the sole director of your own company, you won’t be automatically enrolled into a workplace pension.
The minimum contributions are being phased in over a few years, and vary depending on what pay definition employers use. For example, from October 2018, employers who use the basic pay definition will have to pay a minimum of 4% of their employees’ salaries into the pension scheme on their behalf. However, employers who use the total pay definition will have to pay 3%.