You may have seen the adverts for workplace pensions on the TV. You should also have received some post from the pension regulator.
If you’ve read the letters you have received and are still not quite clear on all of the terminology, or what it means to your business, you are probably not alone.
That’s why we have created the Midas guide to auto-enrolment. You can also call your client manager for more information.
Why is this happening?
The Government believes that as a country we are not saving enough for our own retirements. A few years ago the stakeholder pensions were introduced. This was an attempt to use employers to offer cheap, simple access to pension schemes. However the take-up of these was not that good and as a country, we continue to not save enough.
To counter this, the Government has created workplace pensions. The basis of this scheme is that a lot of employees will automatically be included in pensions and have deductions made. Employers will also have to make contributions to the scheme.
At Midas, it’s important that our clients not only understand the terminology but also feel confident moving forward towards a new era for staff pensions.
Workplace pensions or auto enrolment?
These words refer to the same thing. The pension is offered by the workplace and directors and employees are automatically enrolled into the pension scheme.
Eligible worker: These are people who have to be automatically enrolled in the scheme. They are aged 22 or over, and under state pension age. They earn more than £10,000 a year, and usually work in the UK.
Non-eligible workers: These are people who are not defined as eligible. They earn over £5,824 (2014/15 rates) and are aged 16 to 75. However, they do have a right to opt into the scheme. For example, a worker may be eligible except for being 21 years old. They are classed as non-eligible but can opt into the pension and the employer will also contribute to the scheme.
Entitled worker: These workers earn under £5,824 (2014/15 rates) and are aged 16 to 75. They have the right to join the pension scheme but are not automatically enrolled. The employer does not have to contribute on behalf of this worker.
Jargon Buster – what you need to know
Auto Enrolment brings with it a plethora of terms which we explain below.
Joining window
A period of one month beginning on the date a worker becomes eligible for automatic enrolment. Their employer must enrol the worker into a qualifying pension scheme and provide information about the scheme, including how to opt out.
NEST
The National Employment Savings Trust is a pension provider available to all employers who want to use them.
Opt in
Some individuals who will not be automatically enrolled are able to opt in to a workplace pension scheme.
Research has also shown people want to know up front that they are able to opt out if they want. This helps them feel in control and prevents them from feeling they are being made to do something they don’t want to. However, employers must be aware not to encourage employees to opt out as that may incur fines.
Pay Reference Period:
This is the period in which employees are assessed to see what contributions will be taken for that month.
Phasing
The government has set minimums for the percentages that have to be paid into a workplace pension, both by the employer and in total. Phasing is a gradual increase in these minimum percentages.
The government has set a minimum amount of money that has to be put into the pension by your employer and in total. This minimum is starting low and will go up gradually over a number of years. From October 2015 employees must contribute 5% of their salary and employers must contribute 3%.
Postponement
Employers can choose to delay the automatic enrolment date of an individual for up to three months – this may be referred to as ‘postponement’.
Qualifying scheme
This just means a scheme meets the new standards under the workplace pension guidelines. This can be within Nest or any of the large pension providers you are familiar with.
Staging
When you’ll be enrolled depends on the size of the organisation. Staging refers to when your ‘stage’ of joining in is. The Government has decided not to have one date for all employers to introduce workplace pensions but to roll out the introduction.
Tax relief
Tax relief is some of your money that would have gone to the government as tax – now it goes into your pension instead. Contributions made to the scheme by employers will get tax relief.
TPR – The Pensions Regulator
This is the UK regulator of workplace pensions, responsible for auditing companies ensuring that employers are compliant with the law surrounding auto enrolment. This is a powerful body with the ability to fine employers. Please do not ignore or overlook letters from TPR!
