Auto Enrolment and Your Business – New Pension Rules and Guidance

The UK is about to see an overhaul of its work-based pension scheme. The changes have already been made but are being implemented gradually across the space of five years. If you’re in work, you need to know the basics of how your pension is going to change.

auto enrolment
photo credit: 401(K) 2013

What is Auto Enrolment?

Auto enrolment is the newly-applied change to the law regarding your pension. The legislation sees employees being automatically enrolled onto workplace pension schemes on employment, without application by the employee themselves.

What does this mean for me?

If you’re an employee and not already on a workplace pension scheme, the law will state that you must be enrolled onto it automatically. If you do not want to be enrolled, you have three months after the date to apply to opt out.

You will be auto-enrolled again every three years, but every time you can chose to opt out again.

If you’re a small business, you may not have to implement auto-enrolment quite yet as the legislation is being applied to larger corporations first.

Millions of workers in the UK will eventually see a slice of their pay packet being automatically diverted to a savings pot for their pension. Employers are obliged to pay in as well, with the government adding a little extra through tax relief.

“With millions of people taking up pension saving for the first time under automatic enrolment, we have to give people confidence that they will get good value for money,” said Pensions Minister Steve Webb in a recent interview.

Who is applicable?

Employees will be enrolled onto the pension scheme automatically if:

  • They are below the state pension age
  • The earn more than £8,105 a year
  • They work in the UK
  • They are at least 22 years of age
  • They are not already in a workplace pension scheme

If you do not qualify to be enrolled automatically, every employee has a right to join the scheme. You can ask your employer about it, and they are legally required to allow you to join.

“Auto enrolment is one of the biggest changes to the financial services industry in recent times and given that the government cannot afford to pay for an increasing pensioner population, it is here to stay. The process has already started with the largest of employers starting their schemes in 2012. Smaller employers will be required to start their schemes over the next couple of years. Employers must plan ahead and take financial advice as failure to be ready could cost dearly with fines up to £10,000 per day.” said Scott Mullen of My Pension Expert

No employers are legally allowed to consider job applicants who are willing to opt of the scheme over those who chose not to.

Do I have to enrol?

As mentioned above; if you’re an employee, you have the choice to opt out of the scheme.

If your business has been asked by the government to take on the scheme, you must follow the instructions. There are fines for non-compliance by companies, which in some circumstances can go up to £10,000 a day.

When will this be happening?

While the actual legislation passed from 1 October 2012, it’s not yet applicable to every company or business in the country.

The government’s plan is to introduce auto-enrolment gradually across the UK. At first, larger firms will be expected to take on the new pension rules; eventually, it is hoped that smaller businesses will be following suit according to the guidelines.