Auto-enrolment has been proposed to support employees to ensure that are automatically registered to join a workplace pension scheme. The new framework will also provide an easy solution for small businesses that have only begun to provide their employees with a pension scheme. Both workers and employers can make contributions to their workplace pension.
Minimum employer contributions (as proposed by DWP for 2017-2018 tax year)
There are certain guidelines as to the minimum contribution an employer must contribute to an employee’s workplace pension based on an employee’s ‘qualifying earnings’.
- Auto-enrolment occurs if an employee is 22 years of age or over (up to State pension age) and earns £10,000 a year or more. Employees are entitled to employer contributions as well as making their own contributions.
However Auto-enrolment does not occur in the following situations:
- If an employee is over 22 years of age (up to State pension age) and earns between £5,876 -£10,000 a year then they can ask to be registered and are entitled to employer contributions
- If an employee is over 22 years of age (up to State pension age) and earns up to £5,876 a year then they can ask to be registered but are not entitled to employer contributions
- If an employee is under 22 years old and earn over £5,876 they can be asked to be registered and are entitled to employer contributions
- If an employee is over the State Pension age and earn up to £5,876 a year then they can be asked to register but are not entitled to employer contributions
Minimum Pension contributions by employees
For the 2017-2018 tax years, an employee will contribute a minimum rate of 1% of their earnings over the threshold of £ 5,876 up to the £45,000. A rise in the minimum contribution rate will occur over the next two years. This rate will rise to 3% in April 2018 and then 5% in April 2019 if approved by Parliament (see table below).
If an employee is not Auto-enrolled then they can be re-assessed every month once their employers pension scheme is up and running. If they choose not to be registered into a workplace pension scheme, then they need to inform the pension company itself in writing as well as their employer. After 3 years, they will be re-assessed and if they meet the criteria for Auto-enrolment then they will be automatically registered for a workplace pension scheme.
| Phasing Period | Employer Minimum contribution | Total Minimum contribution |
|---|---|---|
| Before 5 April 2018 | 1% | 2%(including 1% staff contribution) |
| 6 April 2018 to 5th April 2019 | 2% | 5%(including 3% staff contribution) |
| 6 April 2019 onwards | 3% | 8%(including 5% staff contribution) |
