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Workplace Pension Auto enrolment for beginners

 
 
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The UK government found that too few workers were saving for their future – the solution?

In 2012, they introduced new laws requiring that all UK employers had to automatically enrol all eligible employees into a workplace pension scheme. 

Who is eligible for auto enrolment?

Employees will fall into one of three categories. They may be eligible jobholders, non-eligible jobholders, or entitled workers. Employees' classifications may change over time and, depending on how they're classified, you'll have different ongoing auto enrolment duties, further details provided below.

Eligible jobholders are employees who are:

  • aged at least 22 years but under state pension age
  • usually working in the UK under their contract of employment
  • being paid over £10,000 per annum, £833 monthly or £192 weekly (current tax year 2021-2022)

Your main obligation: you have to automatically enrol these employees into your workplace pension scheme and contribute to their pension fund. These employees can choose to opt out once they have been automatically enrolled

Non-eligible jobholders are employees who are:

  • aged between 16 and 74 (inclusive)
  • usually working in the UK under their contract of employment
  • earning less than the amount needed to be eligible for auto enrolment but more than the lower earnings threshold (more than £6,240 annually, £520 monthly or £120 weekly but no more than £10,000 annually, £833 monthly or £192 weekly in the 2021-2022 tax year).

Or

  • between 16 and 21 (inclusive) or between the state pension age and 74
  • usually working in the UK under their contract of employment earning the minimum amount eligible for auto enrolment; over £10,000 per annum, £833 monthly or £192 weekly (current tax year 2021-2022)
  • Your main obligation: you don't have to automatically enrol these employees, but they can opt in. If they opt in, then you have to make contributions to their pension fund.

Entitled workers are employees who are:

  • between 16 and 74
  • working in the UK under their contract of employment
  • earning lower than £6,240 annually, £520 monthly, or £120 weekly for the 2021-2022 tax year)
  • Your obligation: you don't have to automatically enrol these employees. They can opt in but, if they do, you're under no obligation to contribute to their pension fund.

What do I need to do as an employer to be compliant?

Employers must auto enrol all eligible employees, it’s also the responsibility of each employer to tell all employees about the company’s auto enrolment scheme and how it will affect them – but your provider can help you to do that.

It's also your responsibility to work out how much you should be contributing to your employees' pensions by doing a calculation on qualifying earnings (i.e. lower level : £6,240 annually, £520 monthly, or £120 weekly

Upper level : £50,270 annually, £4,189 monthly or £967 weeklyFor the 2021-2022 tax year)

Before you do that, you have to decide which basis you'll use – banded or unbanded earnings.

If you choose banded earnings, then you'll have upper and lower limits, known as thresholds, of £6,240 and £50,270 p.a. (these figures may change in each new tax year).

If you choose unbanded earnings, then you'll be working out contributions as a percentage of your employees' total earnings (the total gross amount assuming the employee is not an entitled worker).

If you've chosen to use banded earnings, then qualifying earnings (the amount you'll use to work out your contribution) in the tax year 2021-2022 are the earnings between £6,240 and £50,270 p.a.. This includes:

  • Salary
  • Wages
  • Commission
  • Bonuses
  • Overtime
  • Statutory sick pay
  • Statutory maternity pay
  • Ordinary or additional statutory paternity pay
  • Statutory adoption pay
  • Large town allowance
  • Some P11D benefits

You must also make sure that you:

  • are paying the right level of contributions
  • respond to requests for higher contributions within the right timeframe
  • manage adjustments to PAYE reporting
  • assess your employees' qualifying earnings on a regular basis
  • provide The Pensions Regulator with your declaration of compliance

Your workplace provider should be able to help and support you with these tasks. 

What happens if I don’t automatically enrol my employees? 

If you don’t auto enrol your eligible employees, The Pensions Regulator can take regulatory action against you. This could result in a penalty notice or legal action if you do not respond to their instruction. 
 

What are the minimum contribution levels?

The minimum contribution level (or the amount paid into the pension) is 8% of the employee’s gross qualifying earnings. Employers must pay at least 3% of this, and the employee pays the rest – 5% of their pre-tax pay which includes the government tax top-up of 1%. If, for example, you as an employer want to pay 4% then the employee must pay at least 4% to make a total of 8%. 
 

Where can I get help?

Barclays Business Banking has partnered with Smart Pension, which means customers can easily set up their workplace pension in a few simple steps. Visit our Barclays website to sign up, set up your employer account with Smart Pension, and add your employees. There is also information on The Pension Regulator’s websitegov.uk or you can speak to an independent financial adviser.



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