The Auto-Enrolment Plan Defined
The Auto Enrolment, or the Automatic Enrolment, is a pension schemes initiative that was established by the government as a part of the Pensions Act 20081. It aims to tackle issues related to retirement planning. It’s mostly focused on the high number of British workers who aren’t saving enough capital for their future.
The new occupational pension law was launched between 2012 and 2018, and it’s forced firms of various sizes to adhere to its codes and principles. The companies were given various workplace pension scheme staging dates.
By 2018, every company in the UK had switched up its systems, and now they adhere to the new Auto Enrolment regulations. Every qualified personnel is enrolled in a credible workplace pension scheme.
How Auto Enrolment Pensions Work
The new Auto Enrolment rules came to the aid of employees who didn’t have future-proof pension plans. You see, instead of the old system where employees opted out of workplace pension schemes, personnel today have to opt-out within one month from when they enrolled in a pension scheme. Moreover, if they don do anything, they automatically become part of the pension scheme.
That typically means that your pension contributions will automatically be drawn from your salary every time your boss pays you, and your employer will also have to make pension contributions on your behalf, regularly.
What You Need to Know About Auto Enrolment Eligibility
Like any other financial plan, the Auto Enrolment scheme requires one to meet specific criteria to qualify for it. Full-time and even part-time employees have to be automatically enrolled in a workplace pension plan if they:
- Are 22 years and above, and haven’t reached the set state pension age, which is currently 66 years for both men and women
- Work in the UK
- Receive more than €10,000 as income every year
- Aren’t already members of a reliable workplace pension plan
Let me explain.
If you receive less than €10,000 per year, but above €6,240, your boss won’t have to enroll you in their pension scheme automatically. Nonetheless, if you ask to become a part of it, your boss won’t have the grounds to refuse your plea and must make the pension contributions on your behalf.
Auto Enrolment Minimum Contributions
Both you and your boss have to make contributions to your occupational pension, and the minimum contribution rate does apply. As a boss, you’ll have to contribute at least 5% of your yearly ‘qualifying remunerations’, which includes a 1% tax relief from the HMRC2 (Her Majesty’s Revenue Customs). Your employer has to contribute at least 3% of your yearly ‘qualifying incomes’ into your workplace pension.
The best part:
The Auto Enrolment qualifying remunerations are the earnings that one makes between €6,240 and a maximum limit of €50,000 according to the 2020/21 financial year. It’s still not clear if the Auto Enrolment pension rates will continue increasing soon. Nonetheless, both you and your boss can contribute more than the least Auto Enrolment rates. Therefore, it’s wise if you considered remunerating more.
How to Transfer An Auto Enrolment Scheme
Life happens, and change is inevitable. Therefore, when you switch from one workplace to another, you’ll no longer be enrolled in your already set up workplace pension scheme, and your boss won’t have to make any contributions to it. Depending on the regulations surrounding your pension plan, you might still be able to contribute to your retirement scheme. You can also opt to move the pension savings you’ve built into your next personal or workplace pension.
The good thing is that:
It doesn’t matter which decision you favor most. You still won’t be able to withdraw from your fund until your 55th birthday. Rather than owning a myriad of small pension schemes, you can also get a pension provider who’ll help you move all your old pension schemes into one, seamless-to-manage pension pot. Transferring your pension savings will offer you greater control and perceptibility over your pension savings. It could also provide you with better value for your capital.
Nevertheless, before you transfer your Auto Enrolment scheme, make sure that you do your due diligence and ensure you won’t lose any assured benefits or be subjected to harsh exit fees.
Got Questions? Check These First
What's Auto Enrolment?
Auto Enrolment is typically a pension scheme in which personnel are automatically enrolled to pay a specific amount of their income every month before they receive their salary.
How Much Do You Need to Earn to be Auto-Enrolled?
Well, according to the set rules and regulations, one can only access the Auto Enrolment scheme if they earn over €10,000 per year and are aged between 22 and 66 years, which is the current state pension age.
If you earn less, but at least €6,240, you will be qualified to join a workplace pension, and you will still be entitled to some pension contributions from your boss.
Who's Eligible for Auto Enrolment?
For one to be considered eligible for the Auto Enrolment scheme, you have to:
- Be working in the UK
- Be aged between 22 years and the state pension age
- Earn over €10,000 every year
- Not be considered a member of another workplace pension plan
How Does the Auto-Enrolment Pension Work?
Simply put, instead of following the old systems where one had to altogether opt-out of a workplace pension scheme, with the Auto Enrolment plan, one has to opt out within one month from when they qualified for a pension scheme.
Moreover, if you don’t do anything, you immediately join the pension scheme. It’s a way of boosting your retirement savings with the benefit of your boss and tax relief4 from the state.
In a nutshell:
No matter the company size, all companies should consider an auto-enrolment plan. With a little bit of effort and time upfront, you can save your employees from having to make difficult decisions about their retirement later on in life when they may be less informed or more concerned with other aspects of their lives.