Employers: are you ready for the new auto-enrolment requirements?

The Pensions Regulator (TPR) recently revealed that over eight million employees have now been enrolled into a workplace pension scheme. However, with further changes in the pipeline, employers should ensure that they are up-to-date with the latest developments. 

Auto-enrolment duties for new employers

Under pensions auto-enrolment, employers have a duty to enrol eligible employees into a workplace pension and pay a minimum contribution into the fund. Eligible employees are those aged between 22 and the state pension age, and who have qualifying earnings over the auto-enrolment earnings trigger of £10,000. 

The law came into force for large employers on 1 October 2012 and has been rolled out gradually with staggered ‘staging dates’. However, from 1 October 2017 new employers must immediately comply with their auto-enrolment duties by enrolling any eligible employees into a workplace pension scheme, from the first day a member of staff begins employment. This is referred to as the duties start date. Employers will still be able to postpone some of their duties for up to three months. 

Minimum contribution rates set to rise

All businesses are required to contribute a minimum amount towards employees’ pensions. Employees also contribute a set minimum amount. These rates are set to rise from 6 April 2018. 

From 6 April 2018, the employer minimum contribution rate will increase from the current level of 1% to 2%. It will then rise again on 6 April 2019, reaching 3%. Meanwhile, the employee minimum contribution rate will increase from the current level of 1% to 3% by 6 April 2018, rising again thereafter to reach 5% by 6 April 2019. 

So by April 2018, the total combined minimum contribution rate will reach 5%, rising to 8% from 6 April 2019 onwards. While in most cases the employee will need to contribute, an employer may choose to pay the full 8% or even higher. 

Contributions are generally payable on qualifying earnings between the lower threshold of £5,876 and the higher threshold of £45,000 in 2017/18. 

Employers who fail to comply with their auto-enrolment duties will be subject to significant penalties. Fines range from a £400 fixed penalty, to a varying daily escalating penalty of between £50 and £10,000, depending on the number of employees.