Auto Enrolment (or Automatic Enrolment) means that employers have to enrol employees automatically into a qualifying workplace pension scheme if they meet relevant criteria. Currently these criteria are:
- To be aged between 22 and state retirement age
- To earn a minimum amount (currently £10,000)
- To be ordinarily employed in the UK
The whole purpose of auto enrolment is to encourage workers to save for their retirement and the government wants to make it as simple and cost-effective as possible for them to do so. This means it’s the responsibility of employers to take all necessary actions to ensure their employees are enrolled and employees need do nothing unless they choose to opt out.
As part of the scheme, both employers and employees make contributions towards a future pension. Currently employers and employees each contribute at least 1% of qualifying earnings. This level will rise until October 2018 when it is intended that the minimum contribution will be 8% of qualifying earnings of which the employer contributes a minimum of 3%. The government will also assist by providing tax relief on contributions.
The introduction of auto enrolment is a significant change, the decision was taken to introduce it in stages starting with the largest companies. The current focus is on SMEs starting with the larger companies in this category and working through to the smallest, so that companies of all sizes are operating qualifying pension schemes by the end of 2017.