What Auto Enrolment Means For Employees
In order to get more people saving more money for their eventual retirement, the government introduced new laws requiring that all U.K. employers put their qualifying employees into workplace pension schemes. This initiative is known as Auto Enrolment.
Whilst occupational/workplace pension schemes have been around for some time and have always been dependent on employees opting to join, auto enrolment requires employers to automatically enrol (hence it's name) employees into a scheme and it is up to the worker to opt themselves out (should they not wish to remain in the pension scheme).
It is the employer's responsibility to inform their workers about auto enrolment and how it will affect them. They are legally required to automatically enrol all eligible employees into a qualifying workplace pension by a set deadline known as a 'staging date'.
Employees cannot automatically enrol themselves into a workplace pension scheme. Employees can choose to remain in the scheme once they have been enrolled or to opt out. Opting out cannot happen until after employees have been enrolled by their employer.
See more on opting out further down the page.
General Employee FAQs and More Information
Below you will find answers to the most commonly asked questions by general employees looking for more information on auto enrolment. Members - employees who have already joined the Smart Pension scheme - will also find some of the information here useful such as:
1. Opting In Or Opting Out
Opt In Or Opt Out
Are you thinking of opting out of auto enrolment? Here are a few things to think about before you do.
Click here to view a Polish language version of this article.
What does 'opt out' mean?
You can decide to leave your workplace pension scheme at any time. If you were automatically enrolled, leaving the scheme within 1 month of the date your employer put you into your workplace scheme (from when the joining assessment email is issued) is called opting out. If you opt out, you will be treated as if you had not been put in the scheme. Any money you have paid in will be paid back to you.
If you leave the scheme after 1 month (this is known as ceasing your membership), you may not be able to get back any payments you have made. This depends on the pension scheme's rules and will vary from one provider to another. Usually they will stay in your pension pot until you choose to open it to take an income.
Under the rules of the Smart Pension scheme, you will not receive a refund on any contributions paid in previously.
When can you opt out?
You have 1 month from being auto enrolled to opt out.
How do you opt out?
You can opt out of your pension only once your employer has assessed if you qualify and then automatically enrolled you into your workplace pension scheme if you do qualify. Your employer is required by law to inform you if you have been enrolled and will let you know how to opt out.
If your employer chooses the Smart Pension auto enrolment platform, all these documents are generated automatically and you can easily opt out online by logging into your member portal. Once signed in, select the menu icon at the top right, select ' Profile Details' and then 'Manage Membership'.
There's a postponement period. Can I still opt-in or opt-out?
An employer may choose to postpone assessing their workers for enrolment. A worker has the right to opt-in during the postponement period. A worker cannot opt out as the scheme has not started yet. You cannot opt out of something that has not yet begun. When opting in, all an employer has to do is check the level of qualifying earnings of the worker to determine whether the worker is a jobholder or entitled worker.
I have previously opted out, can I opt in?
If you previously chose to opt out you can ask to opt in to the scheme again. If this is within 12 months of your decision to opt-out your employer does not have to accept your request but they may do so.
I have not been automatically enrolled by my employer, can I still choose to opt in?
Yes you can. Depending on how much you earn and how old you are, your employer may have to pay into your pension account too.
2. Age vs Earnings - Changes To Your Situation In The Future
Employees might find that they were once not eligible for auto enrolment due to their age and/or their earnings but that situation can change at some point in the future.
What happens if you start to earn more than £10,000.00 (£833.00 a month, £192.00 per week) in the future?
If you start to earn more than the minimum £10,000.00 a year (currently £833.00 per month or £192.00 per week) you will be automatically enrolled into our workplace pension scheme, so long as you are aged 22 or over, are under State Pension age and work or usually work in the UK.
If this happens, you will receive an email notifying you that you will be auto enrolled. You can opt out of the scheme if you want to, but if you stay in you will have your own pension which you get when you retire. The Company and you will pay into it every month.
If you are currently under the age of 22, what happens when you turn 22?
If you are earning more than the minimum (currently £10,000.00 a year, £833.00 a month or £192.00 per week) when you reach 22, you will be automatically enrolled into our workplace pension scheme. You will receive an email once you are 22, giving you all the information you need. You can opt out of the scheme if you want to, but if you stay in you will have your own pension which you get when you retire. The Company and you will pay into it every month.
If you're under the age of 22 or over the state pension age and earn more than £10,000.00 a year (£833.00 a month or £192.00 per week)?
You are classed a non-eligible employee and you will not be automatically enrolled but you will have the right to join our workplace pension scheme if you want.
3. Leaving/Moving Jobs
Leaving your job and moving to a new one
As long as you still meet the qualifying criteria, you will be automatically enrolled into the new job's pension scheme. You can also transfer your current workplace pension accrued benefits to your new employer's chosen pension provider and build as one. If you leave it where it is then you cannot put any further contributions into it.
If you have more than one job
If you meet the qualifying criteria, you will be automatically enrolled into your employer's pension scheme. This could mean enrolment into more than one scheme if you meet the requirements for both. If you don't wish to manage two or more pension schemes, you have the right to opt-out.
4. Your Contributions
See section 5. Taxation and Your Pension Scheme for information about how tax relief is obtained on your Smart Pension contributions.
What are the minimum contribution levels for auto enrolment?
Under the auto enrolment regulations, the total minimum contribution level needs to be 8% of qualifying earnings, of which the employer must contribute a minimum of 3%. You can increase the percentage you pay into the Scheme if you wish, either by logging into your member portal or telling your employer's pension administrator. You can increase the percentage you pay into the Scheme if you wish, either by logging into your member portal or telling your employer's pension administrator.
Are pension contributions payable on London Weighting?
Yes – London Weighting forms part of the calculation for qualifying earnings for automatic enrolment purposes. This is also referred to as Large Town Allowance as it is available in many towns and not just London. Please refer our Employee Classifications & Qualifying Earnings page for more information.
Is there a limit on what you can contribute to the workplace pension scheme?
You can increase the amount you put in if you want, up to 100% of your earnings subject to the Annual Allowance of £40,000. This maximum would reduce to £4,000 if you have drawn benefits under the Small Fund retirement options available to those over age 55.
5. Taxation and Your Pension Scheme
Understanding Tax Relief
If part of your contribution comes from income below taxable levels, no tax relief will currently be available on that part. Please refer to your payroll administrator or professional adviser for assistance if you want an explanation of the tax rules applicable to your circumstances.
There are two HMRC approved methods for paying contributions into a Pension Scheme:
1. Net Pay Arrangement
The current method of paying contributions into Smart Pension is under HMRC's 'Net Pay Arrangement'. Despite its somewhat confusing name following the definition set out by HM Revenue & Customs, this arrangement ensures that 100% tax relief is achieved via payroll. This is because all contributions are paid over to Smart Pension 'Gross' (with no tax taken), thus removing the need to claim the higher and additional relief via Self-Assessment.
Note – a Net Pay Arrangement will not provide a 20% tax credit to employees earning below their relevant personal allowance for income tax.
2. Relief At Source
An alternative method for paying contributions is under HMRC's 'Relief at Source' arrangement, where the payroll calculates 20% tax before employee contributions are paid to the scheme. As this employee contribution gets paid to the pension 'Net' of 20% tax (after tax has been taken), the provider must reclaim this 20% tax from HMRC. Please note that Smart Pension does not currently offer this method of claiming tax relief.
Note – employees who pay tax at the higher and additional rates will be required to complete a Self-Assessment to claim their full tax relief.
For more information please visit: http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04200040.htm
National Insurance (Social Security)
Both employee and employer pension contributions are exempt from tax, however, under National Insurance this is not the case:
- Employer Contribution – Exempt (NI relief can be obtained)
- Employee Contribution – Not Exempt (NI Relief cannot be obtained)
6. Links To More Useful Resources
7. Employee Support & FAQs
Our Employee Support & FAQs page contains answers to the most frequently asked questions and common topic areas raised by employee members. It is designed for employees (those of companies who have engaged Smart Pension to help them provide a workplace pension) who may have support questions or issues that need resolving such as:
- if you are struggling to log into your Smart Pension workplace pension account;
- if you are struggling to access your messages in your account inbox;
- wanting to opt out (once you have been assessed);
- understanding your annual statement;
- finding out how to initiate a pension transfer;
- what your options are when it comes to retirement.
To access our Employee Support & FAQs, click the button below. Employee Support & FAQs