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Reviewing the changes to pensions auto-enrolment

From 6 April 2019, minimum employer and total contributions into pension schemes rose. Here, we review these changes, and analyse the pensions auto-enrolment scheme in greater detail.

Auto-enrolment: an overview

Under the pensions auto-enrolment scheme, employers must automatically enrol eligible workers into a qualifying pension scheme. Employers’ duties include assessing the types of workers in their business; providing a qualifying auto-enrolment pension scheme for workers; paying employer contributions; reassessing the workforce; and completing the declaration of compliance once every three years.

Under auto-enrolment, there are three categories of worker: entitled workers; eligible jobholders; and non-eligible jobholders. To qualify as an eligible jobholder, a worker must be aged between 22 years and the State Pension age; meet the minimum earnings threshold of £10,000; work or ordinarily work in the UK; and not already be part of a qualifying pension scheme. Most workers fall into the eligible jobholders category. These workers are entitled to auto-enrolment pension contributions from the first day of their employment, or on meeting the age and earnings qualifications. It may be possible to delay assessment for individual workers for up to three months, under ‘postponement’, however timely communication with the worker on this issue is vital.

Non-eligible jobholders are able to opt-in and join the auto-enrolment pension scheme and are then eligible for contributions on the same terms as eligible jobholders, including entitlement to employer pension contributions. Meanwhile, entitled workers have the right to join a pension scheme. However, for this type of worker, employers are not required to pay employer contributions.

Rising contributions and fines

On 6 April 2019, employer minimum contributions rose from 2% to 3%. The total minimum contribution also increased from 5% to 8%. Employers are required to make at least the minimum contribution, and employees must make up the difference.

Since the introduction of pensions auto-enrolment in 2012, regulatory body the Pensions Regulator (TPR) has handed out a significant number of fines.

The number of fines handed out rose considerably when auto-enrolment was rolled out to include small employers. Since 2017, small firms with fewer than 50 employees have been required to comply with auto-enrolment. Penalties for non-compliance range from fixed penalty fines of £400 to daily escalating penalties of between £50 and £10,000, depending on the number of employees a business has.

Employers must ensure they are fully compliant with the auto-enrolment regulations. Detailed guidance can be found on TPR’s website: https://bit.ly/2DL3YGv.Contact us to ensure you are compliant with auto-enrolment.