What's next for Auto-enrolment?

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Almost a decade on from the introduction of auto-enrolment workplace pensions, new changes could be on the horizon to bring more savers under the scheme. 

 

On 5 January 2022, a bill was put forward in Parliament that would extend auto-enrolment to workers aged 18 or over, as well as scrapping the current £10,000 minimum earnings threshold.

 

The Government has previously said it intends to extend the scope of auto-enrolment "by the mid-2020s" but if approved, the bill would make those plans more tangible.

 

What is auto-enrolment?

Automatic enrolment, usually known as auto-enrolment, is a measure that was included in the Pensions Act 2008 and rolled out from 1 October 2012.

 

It requires every employer in the UK to enroll qualifying staff into a defined-contribution workplace pension scheme and make contributions towards it.

 

This applies to all employers, regardless of size - whether you employ 1 member of staff or 100, you will need to know the auto-enrolment rules.

 

According to Government statistics, auto-enrolment has increased the percentage of eligible employees participating in workplace pensions by 33%, with 10.6 million employees enrolled through the scheme as of November 2021.

 

Who qualifies for auto-enrolment?

Any worker earning more than £10,000 a year and aged between 22 and their state pension age must be put into a defined-contribution workplace pension under auto-enrolment. Auto-enrolment also applies to seasonal or temporary staff and those on flexible and variable pay.

 

You will need to consider each employee and work out whether they meet the auto-enrolment criteria.

 

What are the minimum contributions for auto-enrolment?

As of 6 April 2019, the total minimum contribution for auto-enrolment schemes is 8%. This is a combined minimum for both the employer and the eligible employee.

 

Employers must pay a minimum of 3% towards this, with the employee making up the remaining 5%. Both parties can choose to pay more, or even make up the full 8%, in which case the employee will not be required to pay anything.

 

It is also important to bear in mind that this minimum is a percentage of qualifying earnings, not overall earnings.

 

An employee's qualifying earnings are those that fall within a specific band. In the 2021/22 tax year, this stands at between £6,240 and £50,270 a year - anything above or below that band is not counted when calculating contribution amounts.

 

Qualifying earnings should take into account salary, wages, commission, bonuses and overtime, as well as statutory sick pay or parental pay.

 

Calculating this correctly every month can be complex, which is why most businesses use specialist accounting or payroll software to process their pension contributions, alongside guidance from a qualified accountant.

 

For more information regarding Auto-enrolment, please contact our Payroll Team on 01460 68700, payroll@lentells.co.uk.