The start date or ‘Staging Date’
The rules come into effect at different times for different companies.
The date that a workplace pension must be in place for a company is called its ‘Staging Date’. Large companies ‘staged’ first and smaller companies followed after. There are thousands of companies staging each month (until February 2018) and the reason that the staging dates have been staggered is so that pension companies are not overwhelmed with setting up everyone’s pensions all at once.
After February 2018, any new company that’s set up will have to have a workplace pension in place as soon as they start employing people.
Companies can postpone assessment for up to 3 months
All companies must have a compliant pension in place on or before its Staging Date, however, they have the option to postpone the assessment of their employees for up to 3 months. If a company postpones assessment people can still choose to opt in early if they want to.
Once the pension is up and running, companies can also choose to postpone new starters for up to 3 months. A new employee on a 3 month probation period can also choose to opt in early if they want to.
There are other scenarios in which postponement can be used by companies, including when someone has a temporary rise in income or something else which changes their status to make them eligible for automatic enrolment. Anyone whose assessment has been postponed, for any reason, can choose to opt in during this ‘deferral’ period.
Employees who meet a certain criteria must be automatically enrolled
People over 22 (and under state pension age) and earning over £10k per year (that’s £833 per month or £192 per week) must be automatically enrolled – *it’s compulsory. Everyone else will be invited to opt in or join the scheme and can choose whether they want to participate or not. If someone does not meet the criteria for automatic enrolment from the start but goes over the thresholds (a birthday or pay rise) at a later stage, they will be automatically enrolled as soon as they meet the criteria.
*In some situations people can be excluded from the workplace pension – for example, if they are already members of a compliant company pension scheme, if they are over state pension age or if they are under 16.
People who are automatically enrolled can opt out
Anyone who is automatically enrolled and who wishes not to participate in the pension scheme can opt out during the ‘opt out period’. This is approximately 30 days from the date they were enrolled or 30 days from the date that they receive their member’s information pack from the pension provider – whichever is the later. The information pack will contain an ‘opt out notice’ along with instructions detailing how to opt out. Anyone who wants to opt out can do so directly with the pension provider or they can give their employer an opt out notice – which either must be signed, if it’s in writing, or sent via email including a statement that they personally submitted the notification.
If someone opts out during the opt out period, their contributions will be refunded and their status is as though they were never a member of the scheme at all.
If people choose to opt in and then decide that they want to opt out, the process is the same, as long as it’s within the 30 day opt out period.
Anyone who wants to opt out after the opt out period can do so by ‘Ceasing Active Membership’. This is not the same as opting out entirely as the contributions do not get refunded even though contributions stop going forward. Each pension company operates different scheme rules around ceasing active membership so it’s always best to check with the pension company to find out the facts.
If people opt out they can opt back in but only once in any 12 month period.
People who are not automatically enrolled can opt in or join
People who do not meet the criteria for automatic enrolment can choose to opt in or join the scheme. There is a difference in status between opting in and joining a scheme. People who earn more than £5,876 per year (that’s £490 per month or £113 per week) can opt in to the workplace pension and their employer must make contributions on their behalf. People who earn under this threshold can join the pension scheme but they will not be entitled to contributions from their employer.
Anyone who joins the pension scheme (without employer contributions) makes contributions on a voluntary basis. The default is set at 1% of their total earnings but this can be changed by the individual at anytime.
If people work in a way which means that their pay varies from week-to-week or month-to-month then they may notice that their employer will sometimes makes a contribution to their pension and sometimes they will not.
Anyone who wishes to opt in or join the scheme can do so directly with the pension provider or they can give their employer an opt in notice – which either must be signed, if it’s in writing, or sent via email including a statement that they personally submitted the notification.
Anyone who joins the scheme (i.e. without employer contributions) cannot opt out of the scheme, instead they need to cease active membership in accordance with the scheme rules, as above.
People will pay a percentage of their earnings into their pension
Once enrolled or opted in, the contributions start at 2% of your earnings. They go up in 2018 to 5% of your earnings and from 2019 onwards they are currently set at 8% of your earnings.
From now until April 2018, you contribute 1% and your employer contributes 1%. From April 2018 until April 2019 you contribute 3% and your company contributes 2% and after April 2019 you contribute 5% and your company contributes 3%. In all cases*, the Government will give you 20% tax relief on your employee contributions.
This means that, in effect, people are actually contributing 0.8% in 2016, 2.4% in 2017 and 4% from 2019 onwards.
*Tax relief cannot be given if you do not have a valid National Insurance number
To Apr 2018 To April 2019 After April 2019 Employee 0.8% 2.4% 4% Employer 1% 2% 3% Government 0.2% 0.6% 1%
Use our Pension Contributions Calculator to see how much your contributions will be and how they’ll change over the next few years.
You don’t contribute a percentage of everything you earn, just some
People’s contributions are based upon part of what they earn, not the whole amount. There is a lower and an upper band or limit, and the amount in between is referred to as ‘pensionable earnings’. The lower band is currently set at £5,876 per year (that’s £490 per month or £113 per week) and the upper band is set at £45,000 per year (that’s £3,750 per month or £866 per week).
For example, if someone were to earn £1090 one month, they would only pay contributions on £600 (the amount above £490).
You can contribute more if you want to
The minimum contribution levels have been set by the Government but that doesn’t stop people paying in more if they want to. Anyone who wants to increase their contributions can do so anytime. People can do this directly with the pension provider or by informing their employer of their desired contribution increase.
People who opt out get reassessed every three years
Anyone enrolled in a workplace pension (whether it’s because they were automatically enrolled or because they chose to opt in) who then chooses to opt out or cease active membership will automatically be re-assessed every 3 years. If they meet the criteria for automatic enrolment when they are re-assessed they will be re-enrolled into the company’s pension scheme. Anyone who is re-enrolled who wants to opt out needs to do so, as before, during the opt out period.
An article by Catherine Pinkney.
Posted on Sunday 26 Mar, 2017July 26, 2017