Pension auto-enrolment: a new phase

Automatic enrolment into employer-run pension schemes became law on 1 April this year, when every UK employer became obliged to enrol staff paid through PAYE into a scheme, subject to a few exceptions detailed below.

Until 5 April 2018, both must pay 1% of the employee’s income into a scheme. The employee's contributions will attract tax relief, meaning the Government will pay the income tax that would have been levied on the employee’s 1% payment into the pension pot. The contributions rise to 2% for the employer and 3% for the employee on 6 April 2018, and 3% and 5% on 6 April 2019.

Businesses set up between 1 April 2012 and 30 September 2017 have later starting dates, but all employees will be covered by February 2018.

Employees fall into three categories: those with a right to join a pension scheme, those with a right to opt in to a scheme, and those who must be enrolled into a scheme. The category depends on the employee’s age and weekly (or monthly) gross earnings.

• Employees aged between 22 and the state pension age (SPA), who earn a minimum of £192 per week gross must be auto-enrolled. However, until they reach the age of 22, and after they reach SPA, employees only have a right to opt in to a scheme. This ceases when employees reach 75.
• Employees aged between 16 and 74 earning less than £113 weekly have a right to opt in to a scheme. Importantly, employers are not required to make contributions.
• Employees aged between 16 and 74 earning between £113 and £192 per week gross, have a right to join a pension scheme. If they exercise this right, the employer must contribute.

Employers must submit declarations of compliance, and failure to do so can result in significant financial penalties.