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We are ever closer to the implementation of legislated employer duties which will require them to automatically enrol employees into a pension scheme without any active decision on the employee’s part.
Employers will be required to automatically enrol ‘eligible’ staff into a suitable workplace pension scheme that meets or exceeds certain legal standards or, alternatively, opt to use the government-backed National Employment Savings Trust (NEST) to meet these requirements.
Due to be introduced next year, and with much of the confusion now removed, auto-enrolment is expected to operate as follows:
All employees aged between 22 and state pension age to be automatically enrolled into a workplace pension scheme or NEST;
Minimum contributions payable upon income in between £7,475 and £38,185 (2011/12). Individuals who earn between these thresholds can opt to save and correspondingly receive a mandatory employer contribution;
The minimum employer contribution is 3% and the minimum employee contribution is 4% which is then topped up with a 1% contribution from HMRC as tax relief;
To be deemed exempt, an employer’s existing pension arrangement must meet the required minimum contributions. These minimums vary depending on the type of scheme and definition of pensionable pay used;
Employers will be given the option of waiting three months before automatically enrolling an employee. Employees can opt in during the waiting period;
The largest employers will auto-enrol first as early as July 2012. Other employers will be phased in depending on their size and PAYE reference numbers.
For those employers with existing pension schemes, not seeking employees’ consent to make deductions from pay will also throw up secondary issues regarding salary sacrifice arrangements on pension contributions as well as flexible benefits.
As an employer what do I need to do?
Employers must be prepared. The cost of funding and administering the auto-enrolled workforce may be significant and, clearly, there is much to consider.
In the next issues of Impact we will take a closer look at some of the key aspects of auto-enrolment and the choices that employers face to help determine the best way forward.
Naveed Riaz is a corporate benefits consultant at CS Financial Solutions. For further information, please contact on 01923 804911 or naveed.riaz@csfinancialsolutions.co.uk.
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