Pension auto-enrolment came into force for large employers on October 2012. This new duty requires employers to auto-enrol certain members of their workforce into a qualifying pension scheme and make contributions towards it. What this means is that employers must have a qualifying pension scheme in place. It also means that employers will have to assess workers on a regular basis to understand whether to include them in the scheme.
Automatic enrolment does not apply to self-employed contractors such as CIS or PSC workers. Umbrella workers are however covered by the scheme.
Pension auto-enrolment is being rolled out to all employers over 5 years on a month by month basis, depending on their size. The staging date for PayStream My Max is August 2013 and we have chosen NEST, which stands for the National Employers Savings Trust, as our pension provider to meet our automatic enrolment obligations. NEST is a defined contribution scheme established by the government.
From August 2013, we will be assessing workers to identify who is eligible for auto-enrolment and who is not. Broadly:-
- A person will be Eligible for auto-enrolment if he is at least 22 years old and below state pension age, works in the UK, and earn more than £9,440 a year. The worker will be automatically enrolled.
- A person will be Non-Eligible if he works in UK, is aged at least 16 years old and below state pension age, and earning between £5,668 and £9,440 a year. You can earn more than £9,440 if you're between 16 and 22, or between state pension age and 75. Non-eligible workers will have a right to opt in but will not be automatically enrolled.
- A person will only be 'Entitled' to join a pension scheme if he is a worker who ordinarily works in UK, is aged at least 16 but under 75 and earns £5,668 a year or less. In this case, we are not required to make contributions towards their pension.
We will automatically enrol eligible workers from October 2013. We will be notifying them in writing to let them know that auto-enrolment will apply to them.
Workers will also be notified that they have a right to opt in (in the case of Non-Eligible or Eligible workers) or join (in the case of Entitled worker) NEST at any time so if anyone wants to opt-in at any time from August 2013, he or she should let us know in writing. Upon receipt of this 'opt in notice', we will be required to enrol him or her into NEST within one month.
Entitled workers can request to join NEST by giving a 'joining' notice. We will arrange membership for the worker but we will not make any employer contributions. The worker will also be expected to arrange payment of his contributions directly with NEST.
The total contributions that will be paid into your pension will rise over the next 5 years as follows:-
The minimum total contribution will also include the tax relief received from the government. Therefore, the minimum total contribution will actually consist of:-
- The minimum employer contribution which will rise from 1% to 3 % by 2018
- The minimum contribution that the worker will contribute which will also rise from 0.8% to 4% by 2018
- The government tax relief which will rise from 0.2% to 1% by 2018.
- The contributions will be calculated on your qualifying earnings which are your gross earnings between £5,668 and £41,450 per year (for the 2013/14 tax year). So, if for example you have annual gross earnings of £20,000 you will have qualifying earnings of £14,332 (i.e £20,000 - £5,668).
A key feature of the auto-enrolment provisions is that eligible jobholders must be automatically enrolled into a qualifying scheme. We have to do this whether you want to be in the scheme or not. However, once enrolled you can opt out of the scheme. You have one month from enrolment to do this. If you opt out you will be entitled to a refund of all contributions. The effect of this is that you will be treated as if you had never joined NEST. Anyone, opting out after a month will not be entitled to any refund of the contributions paid into NEST, but no further contributions will be made.
Where an eligible workers opts-out or leave NEST, we will need to re-enrol them in NEST approximately every three years from staging date, if they are still an eligible worker and employed by us. This is designed to ensure that workers who have opted out are forced to reconsider their decision on a regular basis. Once we re-enrol workers into NEST, they can choose to opt out of the scheme again
Entitled workers have no right to opt out but can choose to cease membership of the scheme at any stage. In this case they will not be entitled to a cash refund of contributions.
At Paystream, we are already taking steps to make this as simple as possible for our workers. We will be publishing more information nearer the time, so watch the space! In the meantime, do not hesitate to get in touch with our Compliance Team at email@example.com if you want to know more.