Auto-enrollment came into UK law in October 2012. The regulation came about to serve the needs of the pension sector to cope with the aging British population and reduce the future burden on the state pension scheme.
What the law states
Under Automatic Enrollment, every employee will be enrolled into a workplace pension scheme. Qualifying employees are those who work in the UK, earn more than £10,000 per annum and are between 22 years of age and of state pension age.
Employees, including part-time employees, not meeting the eligibility have the right to opt-in under qualifying conditions.
How it works
Payment is made directly from wages/salary into the pension scheme. The contribution made by the employee is added to by the employer (a legal obligation) and the amount is further enhanced by tax relief.
Although the law became enforceable in October 2012 with amendments made in April 2014, the rollout is gradual, with all qualifying businesses to be compliant by 2018.
Whilst it is legally enforceable for employers to offer a workplace pension scheme, it is not compulsory for employees to be in the scheme – job holders have options. Every employee who qualifies is sent a letter informing them of their auto-enrolment date. At this point the employee can choose to opt-out. The term opt-out has specific connotations when it comes to pension schemes and employers will need to be aware of the governance to ensure the correct conditions apply and are met, which includes timelines as defined by the Department of Work and Pensions. The principle is to encourage pension saving so it is more important to cultivate a culture of opting in than opting out.
Employer’s Obligation
Auto-enrollment is quite simply the law of the land for the UK. All employers must comply with the legislation. Any organization that pays people for work and is covered by the legislation, needs to be prepared to meet its auto-enrollment timetable. This means that if there is no workplace pension scheme in place, one has to be created.
All employers with a registered PAYE scheme will have a staging date. The date depends on the size of the employer. The larger the business and number of employees, the sooner in the timeframe the staging date will be.
Employers may take the option to postpone but this option only has a three month extension. Because this is a legal obligation, action will be taken in cases of non-compliance. The Pensions Regulator has various methods to deal with non-compliance from statutory and penalty notices to enforcement notices and the legal process through the courts.
Employers will find life easier with payroll software that processes auto-enrollment pensions.
Software Solutions
The Payroll department and in particular, payroll software will be important in the run up to the staging date and beyond. The software will help the employer identify the staff that need to be included in auto-enrollment and will then process the pension contributions once the pension scheme is up and running as part of its regular functions.
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