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Auto-enrolment is a government initiative aiming to help more people save for their retirement through a workplace pension scheme. Prior to its inception in 2012, many employees missed out on the opportunity to save for retirement because their company didn't have a pension scheme, or because they never got around to joining the existing one.
With the advent of auto-enrolment, it became compulsory for employers automatically to enrol any eligible personnel into a pension scheme, and contribute towards it. Employees must also contribute and, although they are permitted to opt out, the take-up of the scheme has exceeded expectations.
Government statistics released for 2018 showed that 10 million people, comprising nearly nine in ten eligible workers, were saving into a workplace pension by the end of the year, with £90.4 billion of contributions put aside for retirement. In addition, the number of participating employees increased from 84% in 2017 to 87% in 2018.
Compliance with auto-enrolment is a complex subject and the legislation concerning it is regularly updated. Penalties are severe if the Pensions Regulator finds irregularities. These include:
From April to June this year 45 companies paid penalties for non-compliance ranging from £700 to £24,000 - amounts which can be ruinous for a small business.
We last wrote about auto-enrolment in January and since then there have been further changes which businesses need to take on board.
At the beginning of the year the minimum requirement for auto-enrolment was 5% of qualifying earnings, of which at least 2% had to be paid by the employer. In April, this was increased to 8% of qualifying earnings of which at least 3% has to be paid by the employer. This is the last increase which is legally required, although employers can make further contributions if they want.
The calculation for this sort of scheme is based on a particular salary range. For the 2019/2020 tax year, the qualifying earning band is between £6,136 p.a. and £50,000 p.a. The earning threshold remains the same at £10,000.
A workplace pension scheme will probably be the single largest benefit cost an employer will have, as well as being one of the most convoluted to operate. It's not surprising that increasing numbers of businesses are handing auto-enrolment management over to professional bookkeepers.
At AMR Bookkeeping Solutions, our expert advisors will remove the risks of non-compliance, regularly review whether your workplace pension scheme is suitable for your particular business and undertake all the necessary administration. We can also establish procedures to ensure departing employees are kept in the loop; the issue of vanished scheme members can cause a major headache if it's not addressed early.
To consolidate our expertise in this area, we have teamed up with Chadwicks (formerly The Pension Counter), a firm specialising in auto-enrolment.