Many workers do not join an employer sponsored pension plan when they begin working and risk losing valuable benefits . Automatic enrolment is meant to overcome this issue by introducing a duty on all employers to automatically enrol eligible jobholders into a pension arrangement that meets minimum standards. This may be an employer sponsored arrangement, or an alternative automatic enrolment plan such as the new National Employment Savings Trust (NEST).
All jobholders who are eligible to join, but not already in a qualifying plan, must be automatically enrolled into their employer's pension plan, without any active decision on their part.
Employers who already provide a pension plan (or plans) for some or all of their workers, will need to decide whether and how they want to use this pension scheme to meet their duties for existing members, as a qualifying plan as well as how they will fulfil their new automatic enrolment responsibilities. To be qualifying all plans must meet a 'qualifying criteria'. If you are planning to use an existing Prudential plan for either automatic enrolment or qualification purposes you will need to check with us that this would be acceptable.
Some key decisions for existing plans
Ahead of their staging date, an employer with an existing pension plan will have to identify which category of worker the active plan members fall into.
If the employer has eligible jobholders who are already active members of their existing pension scheme, employers will need to consider whether they wish to use the existing pension scheme as a qualifying scheme for these existing members. This will mean that they will not have an automatic enrolment duty for these individuals but will be required to issue them with information. The requirement remains, however, to ensure new joiners are automatically enrolled into a suitable plan - this may be the employer's current or alternative plan.
When you need to automatically enrol jobholders will depend on how many workers you employ, and is based on PAYE tax information. The date by which you need to have introduced automatic enrolment in your workplace pension arrangement is known as your 'staging date'.
There is a wide range of workers who will need to be considered. The diagram below explains the rights of different groups of eligible jobholders. We have also provided some of the key points, and some questions and answers.
|From 16 to 21||From 22 to SPA*||From SPA to 74|
|£490 and below||
Has a right to join a pension scheme
|Over £490 up to £833||Has a right to opt in||Has a right to opt in||Has a right to opt in|
|Over £833||Has a right to opt in||Automatically enrol||Has a right to opt in|
Figures correct as of 2017/2018. *SPA=State Pension Age
Figures above have been rounded up, and exact figures should be applied. Note the lower earnings limit for 2016-2017 is £5,824 and for 2017-2018 is £5,876.
Who needs to be enrolled?
1. Jobholders aged between 22 and the State Pension Age, earning more than £833 gross per month (£10,000 per year) must be automatically enrolled into a suitable workplace pension and the employer must contribute to it.
2. Jobholders earning more than £833 gross per month (£10,000 per year), aged between 16 and 21 or aged between State Pension Age and 74, can opt-in to the pension plan.
3. Jobholders aged between 16 - 74 with gross earnings between £490 gross per month (£5,876 per year) and £833 gross per month (£10,000 per year) have the choice to opt-in to the plan.
4. Jobholders aged between 16 - 74 with gross earnings of £490 per month (£5,876 per year) or less, have the right to join a pension plan.
5. Employers must issue a jobholder agreement to all scheme members - a copy can be found here.
6. Every three years, employers must re-enrol eligible jobholders who previously opted-out.
- Contributions are based on earnings which are at least equal to the qualifying earnings (currently between £5,876 and £45,000). Qualifying earnings are defined as salary, overtime, bonus, commission and statutory pay.
- See how a job holder's level of earnings 'trigger' their entitlement
- If members are paid annually, quarterly, fortnightly or weekly, the earnings thresholds are as follows:
Earnings threshold for the current tax year (2017/2018)
|2017-2018||Annual||1 week||2 weeks||4 weeks||1 month||1 quarter||6 monthly|
The figures above are for the 2017/2018 tax year. The Government may change these in future years.
*The above figures are approximated. Exact figures should be confirmed with the Pensions Regulator.
A jobholder, or worker, includes individuals who:
•Work under a contract of employment (an employee) in the UK.
•Have a contract to perform work or services personally and are not undertaking the work as part of their business.
•Full time employees
•Part time employees
By April 2019, for all eligible jobholders, there needs to be a minimum contribution of 8% of qualifying earnings being paid into a qualifying pension plan of which the employer must pay a minimum of 3%. If the employer chooses to pay the minimum 3%, the jobholder will pay the difference, topped up by tax relief from the Government.
Contribution levels, based on qualifying earnings, are 'phased' between October 2012 and April 2019 as shown in the table below:
|Time||Employer minimum contribution||Total minimum contribution|
|Employer's staging date to 31 March 2018||1%||2%|
|1 April 2018 to 31 March 2019||2%||5%|
|1 April 2019 onwards||3%||8%|
Employers can pay more than the minimum outlined here and there is flexibility to pay contributions differently.
•It can be difficult to calculate earnings levels and contributions accurately, especially if earnings are variable. To deal with this it is possible for an employer to 'self-certify' their plan using one of three alternative arrangement bases. These alternative arrangement contributions are also phased in through to October 2018.
•If the employer wishes to use an existing plan for qualifying purposes or for automatic enrolment, the basis of the contribution may influence the employer's decision concerning the basis of qualifying earnings.
Find out more about Self Certification.
Pension contributions may be paid to Prudential either as a fixed amount or as a variable amount.
If the payment is made on a variable basis, this would need to be done using a regular inter-bank transfer. Any variable payment would need to be accompanied by a detailed statement to show the contributions to be allocated to each employee's account. Without this statement it will not be possible to allocate any of the contributions received.
If payment is a fixed amount, this could be collected through a direct debit against a company bank account. If payment is made by fixed amount the pensionable pay basis would need to be basic pay (Alternative tier 1) as this does not vary each pay period.
A detailed statement showing the contributions to be allocated to each employees account would be required whenever there is any change to the amount paid. This would require a notification in the event of the change in pay, or contribution rates, or if any employees start or leave the plan. Without an updated statement contributions would be allocated in accordance with the last statement received by Prudential. This may result in contributions being incorrectly allocated, which would require corrections.
Please note, it is the employer's responsibility to ensure that the amount paid/collected accurately reflects the amount required based on the employees earnings, and is at least equal to the minimum contributions required for each member in each pay period.
Better Workplace Pensions - we're here to help
On the 6th April 2015, the Government introduced additional requirements for workplace pensions.
Automatic enrolment & qualifying workplace pensions
The law on workplace pensions has changed. Every employer with at least one member of staff now has new duties.
Understand your obligations
The Government has created an employer responsibility to automatically enrol eligible jobholders into a good pension plan, and to make contributions to it.
Things to think about
The rules are now in place and there are a number of issues you will need to consider to practically implement the regulations.
Would you like to use your Prudential plan for qualifying purposes?
If you would like your plan to qualify under the new rules, we may be able to help you, but you will need to let us know six months before your staging date.
Prudential's Independent Governance Committee
Since 6th April 2015, there is a requirement for pension providers of contract-based plans to establish an Independent Governance Committee (IGC).
If you are an Employer and want to discuss how we can work together or to find out more details about our corporate solutions, please contact us.