Workplace Pensions

 

Employers of all different businesses have an obligation to set up pension schemes for their employers. Within the upcoming year, all business employers will be held responsible by law to ensure that their employees have a set up pension plan, as long as they are eligible as a worker. There are certain rules and responsibilities an employer needs to be aware of and understand in order to successfully abide by this new law.

Automatic Enrolment Scheme

The new workplace pension scheme is called the ‘Automatic Enrolment’ scheme, and this allows workers the opportunity to automatically become enrolled on a pension scheme set up by their employer. Each company has a ‘staging date’, and this is the date by which the employer must set up their workers onto the scheme. A company’s staging date can be checked through the pensions regulator, which will tell you specifically when you must have the scheme set up by.

Eligible Employees

Only certain workers are eligible for workplace pensions on the new scheme, which means employers are responsible for abiding by the following guidelines and correctly enrolling the correct staff.

1. In order to be enrolled on the automatic enrolment scheme, an employee must be aged between 22 and the state pension age. The state pension age varies between different people in regards to; the number of years they have worked, paid National Insurance, if they have any additional benefits and sometimes other factors or circumstances.

2. A worker is entitled to automatic enrolment as long as they earn at least £9,440 annually. If workers earn this or above, they are legally entitled to enrolment and a contribution made towards their pension by their employer. If an employee earns below this amount a year, as an employer you are not obliged by law to enrol them on the pension scheme. However, an employee can still choose to be enrolled onto the same pension scheme which an employer can not refuse, but they will not have to contribute to their pension. You are not obliged to contribute to any workers pension if they earn less than £473 a month, £109 a week, or £436 every 4 weeks.

3. An employee must also be working in the UK in order to be enrolled onto the pension scheme. If a worker does not work inside the UK, an employer is not obliged by law to automatically include them on the pension scheme.

Employer Rules

Enrolling workers onto the automatic enrolment scheme means you must make a contribution towards every workers pension who is a member. As an employer, you must pay at least the minimum contribution and it must be paid on time. The law states that a minimum percentage of a workers ‘qualifying earnings’ must be paid into their pension scheme. Qualifying earnings can either be considered as the entire wage paid to the worker before tax is applied, or the amount earned by the worker before tax, between £5668 and £41,450 a year. As an employer you are allowed to choose which qualifying earnings will apply to your workers. Contrary, you may offer workers a ‘defined contribution’ pension scheme, which usually pays above minimum contributions.

As a professional employer, you must not try to encourage or force any workers to opt out of a pension scheme, nor must you treat any employees differently for being or not being involved in a pension scheme. You are also, by law, not entitled to close any workplace pension before automatically enrolling all eligible members into another scheme.

You are obliged to inform your workers, by letter, specific information they’ll need to know about their pension. In the letter you’ll need to include the date that the employee has been added to the pension scheme, what type of pension scheme they are on and who is in charge of it, the amount you will contribute towards it and how much the employee will have to pay in, and how the employee can leave the pension scheme if they choose to do so.

Pension Scheme Control

Any employer has the right to delay an enrolment date by anything up to 3 months. If workers are on a ‘defined benefit’ scheme or a ‘hybrid’ pension scheme, the delay time may be longer, however you must inform the employee about the delay in writing.

An employer may also put employees on a ‘Salary Sacrifice’ system, which means that part of the worker’s wages will be cut and this will go straight into their pension. If you are an employer and want further information about workplace pension schemes, follow this link: https://www.gov.uk/workplace-pensions-employers

Please note that this post is for information only and should not be construed as financial advice.

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