Auto Enrolment Frequently Asked Questions - Part 2

In the second Frequently Asked Questions, Paul Jackson of Taylor Patterson addresses the issues and uncertainties faced by clients in relation to auto enrolment.

Will all employees be auto-enrolled into a workplace pension?

The process started in October 2012, with the larger employers leading the way. An employer must enrol any employee into a workplace pension who:

  • Meet the earnings criteria of £9440.00 a year (in 2013-2014)
  • Ordinarily works in the UK
  • Be 22 years of age or over
  • Be under the State Pension Age
  • Are not already in a qualifying workplace pension scheme
  • If an employee does not meet the criteria above at the time when their employer begins the Auto Enrolment process they will be auto-enrolled when they meet the criteria.
For example, an employee is 18 at the time, they will not be auto-enrolled until they reach the age of 22.

Why is Auto Enrolment happening?

Auto Enrolment has been introduced to try to help people build additional income on top of the state pension when they retire. People are reaching retirement having not planned for it and suffering a dramatic drop in their living standards.

In 2013/2014 the state pension for a single person is £110.15 per week. The introduction of Auto Enrolment will encourage people to start saving for retirement a lot earlier in life, making it less of a shock when they reach retirement. Auto Enrolment is something that an employee can opt out of – but for those who remain in the scheme they will have a pension scheme in addition to the State Pension when they retire.

How much will be paid into the Auto Enrolment scheme?

The government has set minimum contributions which employers and employees must make to the scheme. These minimum contributions are staggered over the next 5 years:

1st October 2012 - 30th September 2017 The yearly contribution will be 2% of qualifying earnings - with employers contributing at least 1%.

1st October 2017 – 30th September 2018 The yearly contribution will increase to 5% - with employers contributing at least 2%.

1st October 2018 onwards The yearly contribution will increase to 8% - with employers contributing at least 3%. The difference between the yearly contribution and the employer contribution is made up of employee contributions and tax relief from the government.