Auto enrolment represents one of the biggest pension legislation changes of recent years. However, the details have not been as well-publicised as many other changes to legislation. As a result, many employees and employers alike are not as familiar with the subject of auto enrolment as they would like to be.
What is Auto Enrolment?
Auto enrolment grew out of a government estimate that 11 million people were not putting aside sufficient savings to support them in their retirement. As a result, it was decided that employees who are eligible for a company pension should be automatically enrolled in a qualifying scheme. However, employees do retain the option to opt out if they choose.
The new legislation will take effect in stages. Official notifications are already being sent to employers to let them know which date from which they will have to implement auto enrolment from. Some employers have already received these dates, and those who have not can expect them over the next few months.
What Does This Mean for Employers?
For employers, it will be necessary to change processes in order to ensure that auto enrolment takes place for all eligible employees. This will require an interdepartmental effort, involving finance, HR, IT and, of course, pensions departments.
It will also be necessary to prepare for any financial impact this will have on the business. Apart from the fact that all eligible employees will now be involved in pension schemes that require contributions unless they opt out, it may be that minimum required contribution levels are higher than those that are currently in place within your business.
At the start, minimum contribution levels for employers will be set at 1%, but this is planned to increase. By 2018, it is expected this will reach 3%, along with 4% employee contributions and 1% tax relief. Overall, therefore, it will equate to 8% of an earnings band if these expectations prove accurate.
Regarding the number of employees who are likely to opt out of this scheme, the latest research suggests this is likely to be only around 10%. As such, contributions of at least these levels will likely be required for around 90% of employees.
It will also be necessary to clearly communicate information to new and existing employees, to ensure that they know where they stand and how the changes affect them.
What Does This Mean for Employees?
The changes for employees are less drastic, but nonetheless important. It is probably best to know where you stand and when to expect the changes to take effect. Your employer should communicate this to you, but if you wish to find out sooner or are not receiving the information you feel you need, do not be afraid to talk to your employer. Ask them what plans they have in place, and when they will be required to implement the changes (if they have received the notification of this date).
It is also important not to forget that once auto enrolment takes effect, if you are eligible for a contributory pension scheme you will become part of it unless you expressly say that you do not want to. As such, if you don’t want to be enrolled you will need to make sure you actively opt out.