What is Auto Enrolment and when did it start?

In Business Management Software, Sage 50by Sophie Galtress

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Savings are quite important, especially when you think about it in the long run, your end goal being retirement. You will want to save up as much as you can throughout your working career so that you can live a comfortable life when you retire. People are living longer, and if you don’t put contributions towards your retirement now, it’s likely that you will struggle to live comfortably just on the state pension. The state pension currently, only offers you £168.60 a week which comes to around £8,800 a year.

It has been recognised that not many people put money towards their retirement. In 2013, the government estimated that almost seven million people were not saving anything for their retirement. Something had to be done and because of this, automatic enrolment became a huge thing for businesses in the UK.

What is auto-enrolment?

In the past, many workers missed out on pension benefits as their employer didn’t offer or enroll them into their company pension scheme. Auto Enrolment changed this – employers in the UK now have a legal obligation to help their employees save for retirement. Auto-enrolment is a set of duties which are carried out by the employer, in order to make sure all eligible employees become members of a qualifying pension scheme by putting high enough contributions towards it. Whilst employers will be putting money towards your pension scheme, employees themselves will also have to make a contribution.

Your employer will contribute a minimum of 3% of your salary towards your workplace pension. Overall, the total auto-enrolment contribution has risen to 8%. So, if your employer is contributing 3%, this means that you’ll be contributing 5% towards your pension.

When did auto-enrolment start?

Auto-enrolment phased in at the beginning of October 2012, starting with the larger UK companies. This meant, that any new employees that joined the company were automatically enrolled into a qualified pension scheme. Every company in the UK since should have enrolled all of their members of staff into a pension scheme by 1st February 2018.

In February 2019, after just a year of auto-enrolment being enforced, almost 10 million workers were auto-enrolled and less than 10% of eligible jobholders had opted out.

Who is eligible for automatic enrolment?

There are some requirements which you need to meet in order to be automatically enrolled in a pension scheme. Workers who are automatically enrolled into a pension scheme are called ‘eligible jobholders.’  When an eligible jobholder is automatically enrolled into a pension scheme, they have up to a month to ‘opt-out’ after they have been enrolled. If you opt-out of the scheme within a month any money that was put into the scheme for you will be refunded in full. Obviously that only applies to the money that you contributed towards the pension scheme, not those contributions made by the government or by your employer.

If you do decide to opt-out or leave the scheme after that first month, any contributions which you have made would usually be held until you can draw out your pension benefits. Most schemes don’t allow you to draw out benefits until you are aged 55 or over.  However, every pension scheme is different, so they may allow a refund. Ask your employer for any details which you may need about your pension scheme.

There are three different types of workers, these are:

Entitled Workers
Entitled workers will have a right to join a pension scheme but it will have to be discussed with your employer and the pension scheme itself.

  • Aged 16-74
  • Working in the UK
  • Earning below £6,136

Eligible Jobholders
Eligible jobholders will be enrolled into a pension scheme as soon as they join a business.

  • Aged 22-SPA (State Pension Age)
  • Working in the UK
  • Earning above £10,000

Non-eligible Jobholders
Non-eligible jobholders will have a right to opt into the pension scheme.

  • Aged 16-21 or SPA-74
  • Working in the UK
  • Earning above £10,000
  • Aged 16-74
  • Earning above £6,136 but below £10,000

Sage 50 Payroll auto-enrolment

Sage 50 Payroll has its own Pensions Module. When an employer accesses the Pensions Module, Sage 50 will take them through a series of steps to set up automatic enrolment. They also allow those that don’t want to be in the pension module to opt-out. Again, they will be given a month from when they either receive written confirmation of automatic enrolment or when the employee becomes an active member.

They make you aware that you have to assess each of their employees every pay period to identify what category of worker they fit into. Like the three different types of workers I stated above, they will assess each employee on:

  • Their age
  • Whether the employee is a UK worker
  • How much the employee earns
Sage have their own 4 steps to simplify the auto-enrolment process:

Step 1) Researching which pension is best for your business can take up a lot of your time. It’s also a decision which you want to get right for your employees. Sage work with ‘Pension PlayPen’ who assess the pension marketplace, research and do all the calculations for you. This means more time and less stress for you.

Step 2) Sorting and enrolling eligible workers can be time-consuming, which will need to be repeated on a regular basis. With a Pension Module, you can assess your employees against legislation in the click of a button.

Step 3) You will be required to send a written communication to all of your employees. It must be done in a timely manner. With a Pension Module, you can automatically prepare an email and print letters which are ready to send to your employees.

Step 4) You will have to keep your Pension provider up to date, meaning it will more than likely increase your workload. Luckily, the Pensions Module has a direct link to some Pension Providers, meaning that it will allow you to exchange data securely with your provider.

Sage work alongside a number of pension providers to ensure that the auto-enrolment process is as simple as possible, whether you’re approaching your staging date or looking for a new solution to manage the processes.

Conclusion

Overall, figures prove that auto-enrolment is delivering its promise of getting more people saving their money towards retirement. The membership of private pension schemes has risen from 1 million in 2012 to 7.7 million in 2017. That’s almost 7 million people in just 5 years! When you join a new company, make sure you’re aware of the rules and regulations within the pension scheme you’re enrolled into.

Obviously, saving for retirement is extremely important, especially if you don’t want to be worrying about your income as you’re getting older. Please don’t hesitate to contact us if you have any questions or queries!


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