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 dependant 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 effect 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.
Manage your Smart Pension
If you are a member, an employee that has already been enrolled by your employer onto the Smart Pension scheme, click the button below to sign in and manage your pension. From here you are able to update your personal details, increase your contributions, choose how they are invested and much, much more.
Sign in to manage your pension. For members only
Are you an employee not yet signed up to a workplace pension?
If you are an employee or worker that has not yet been enrolled onto a workplace pension scheme but are interested in joining one, you should contact your employer for more information. You cannot automatically enrol yourself. You can, however, use the contents of this page, including our short video explaining the new pension legislation in under two minutes as well as our list of FAQs raised by employees, to learn more about auto enrolment and how it will effect you.
Video: Your Workplace Pension Explained In Under Two Minutes
This short yet concise video explains how the new goverment legislation, auto enrolment, works and how it will effect employees.
Transcript: Your Workplace Pension Explained, In Under Two Minutes
Your workplace pension explained, in under two minutes. The UK government found that too few workers were putting money into a pension.
New laws requiring that all U.K. employers "automatically enrol" their qualifying employees into a workplace pension scheme.
A qualifying employee is:
- Any employee of any nationality who ordinarily works in the UK,
- Who is 22 and over but under the state pension age,
- and who earns more than £10,000 a year.
Employees falling outside of this may also elect to join the workplace pension voluntarily.
Employers must not encourage or force employees to opt out. However, employees may choose to opt out on their own.
Initially, employees must contribute 0.8% of their salary to the pension. Their employer and the Government will then top that up by 1.2%. Total pension contribution: 2.0% of the employee's salary. So, for every £1 that an employee puts into their pension, another £1.50 will go in on top, for free.
The government has passed laws to ensure that workplace pension fees are fair. Employees will typically pays a small percentage fee, based on the amount of money in their pension.
It is your employer's responsibility to set up the workplace pension and assess if you qualify. Your employer is then required to keep you informed so you know what's happening.
Please visit https://www.autoenrolment.co.uk/employee-information
Or contact the person on screen now:
Autoenrolment.co.uk Master Trust Pension Scheme Booklet
This booklet is designed for members, employees enrolled by their employers onto the AutoEnrolment.co.uk Master trust pension scheme, and sets out the terms and conditions of membership. It also answers important questions about the scheme and members' future benefits including:
- Contributions including payments and investment strategy
- Your membership (active members and deferred members)
- Taxation including tax relief and tax payable
- Your benefits at retirement
- Your benefits on death
- Scheme information including charges and governance
- How to make an enquiry or complaint
- How to contact Smart Pension
This booklet is designed for employees and is aimed to provide information about auto enrolment and how it works with Smart Pension. In here you will find:
- What is auto enrolment and why it is happening
- Your employer's obligations
- Minimum contribution levels for you and your employer up to 2019
- The Employee Portal - how you can manage your own pension
- Your investment options
- Why Smart Pension - 5* Defaqto rating and MAF accreditation
- Links to helpful resources
- Smart Pension contact information
Employee FAQs and More Information
Below you will find answers to the most commonly asked questions by members, employees who have been enrolled onto a Smart Pension workplace pension scheme by their employer, but also by workers who have yet to join a scheme through their employer. Members will also find other useful information here such as Understanding Tax Relief and Taxation.
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 is called opting out. If you opt out within 1 month of the date your employer put you into your workplace scheme (from when the joining assessment email is issued), 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 opt out after 1 month, you may not be able to get back any payments you have made. This depends on the pension scheme's rules. Usually they will stay in your pension pot until you choose to open it to take an income.
If you want to opt out, you will receive an email from our pension providers and there will be link which you must follow to opt out of automatic enrolment.
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.
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.
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 (£833 a month, £192 per week) in the future?
If you start to earn more than the minimum £10,000 a year (currently £833 per month or £192 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 a year, £833 a month or £192 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 a year (£833 a month or £192 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 job 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
What are the minimum contribution levels for auto enrolment?
Under the auto enrolment regulations, the minimum contribution level is presently 2% of qualifying earnings, of which the employer must contribute a minimum of 1%. Then from 6 April 2018 contributions will rise to 5% of qualifying earnings, of which the employer must contribute a minimum of 2%. And finally, the minimum contributions from 6 April 2019 will be 8% of qualifying earnings, of which the employer must contribute a minimum of 3%. This is known as contribution phasing. 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.
How is income tax relief obtained on contributions?
Tax relief is obtained through the government top up so for an employee making a minimum contribution of 1% that is broken down to a contribution of 0.8% from the employee with the government topping up the additional 0.2% to make the full 1%. The contributions are taken from the gross salary (before tax is deducted) - allowing for the tax relief. For example, if you pay say £10.00 then the net amount deducted from pay is £8.00 (the government tops up the addtional £2.00 via tax relief). With the employer's contribution of £10.00 this means your savings of £8.00 immediately become £20.00 in your pension fund.
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 £10,000 if you have drawn benefits under the Small Fund retirement options available to those over age 55. The amount contributed by the government in the form of tax relief would also increase. The employer contribution will not increase.
5. Your Pension Scheme And Taxation
The Autoenrolment.co.uk Master Trust (your pension scheme) takes contributions from you and your employer to pay into your pension pot. These contributions are received from your employer without deduction of income tax. This is called a 'net pay arrangement'. By not charging income tax as usual on these amounts, the Government is also contributing to your pension pot (although you will be charged income tax when you take income from your pension after retirement).
For most members of the scheme this net pay arrangement gives members full tax relief, but scheme members who would not normally pay income tax on all their contributions will not get that tax relief (because part or all of the income they contributed was below the starting point for income tax). However, this doesn't affect the amount that is paid into your pension and you'll continue to benefit from the money that your employer pays in.
6. 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.
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', 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.
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, 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)
7. Links To More Useful Resources
8. Employee Support & FAQs
Our Employee Support & FAQs page contains answers to the most frequently asked questions and common topic areas raised by employees. 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 e.g. if you are struggling to log into/access your Smart Pension workplace pension account, wanting to opt out (once you have been assessed), finding out how to initiate a pension transfer or what your options are when it comes to retirement etc.