What is auto-enrolment who does it affect?
The scheme was introduced to ensure that as many people as possible have a pension scheme in place and are saving towards retirement, so now all employers must provide a workplace pension scheme with ‘automatic enrolment’. Auto-enrolment is a departure from the way workplace pension schemes traditionally worked because previously the onus was on the employee to join an employer’s pension scheme if he/she wanted to. Now, under auto-enrolment, employees are automatically put into their workplace pension scheme – though they can still choose to opt out. However, since employers also make a significant contribution, this is a big incentive for employees to opt in and to take advantage of this.
Currently you need to be at least 22 years old and earning over £10,000 per year in the UK in order to qualify for auto-enrolment. From April 2019 the minimum employer contribution rose to 3% of qualifying earnings (earnings between £6,240 p.a. and £50,000 p.a.) and the minimum total contribution increased to 8% of qualifying earnings, meaning that if the employer only paid their 3% minimum contribution, then the employee would need to pay 5%.
However, since such deductions are made out of an employee’s pre-tax salary, this in itself offers tax relief for the employee. In addition to these contributions though, the government also pay into the scheme, essentially paying any tax due into the pension scheme, e.g. a pension contribution of £100 would cost a standard-rate taxpayer just £80, with the rest being paid in by the government.
How can Downham Associates help?
You will see from all the qualifying rules and different rates that this can be a significant administrative burden, but it is crucial to ensure that the management and administration of the scheme is watertight. Please contact our payroll and pension experts who will be able to advise on what your business needs to do in order to be compliant, and if you decide to outsource your full payroll service and auto-enrolment scheme, we will take on full responsibility for all its functions including liaising with pension providers and HMRC where necessary.