Frequently asked questions relating to auto-enrolment
What is Auto Enrolment?
Auto Enrolment is a new legal requirement for all employers to provide a pension that meets minimum standards by 2018 (it is phased in for different sizes of employers from 2012).
All employees over age 22 and below State Pension Age, who work or ordinarily work in the UK, must be enrolled into a pension scheme as long as they earn over a certain amount per week or month.
Is there any way around the need to comply with all the employer duties?
As an employer, you must comply with all of your duties. The Pensions Regulator will audit all companies to make sure they are fulfilling their duties and there are substantial fines that may be levied against companies that do not comply.
Will NEST fulfil my all my employer duties?
No. NEST is a pension scheme into which pension contributions from auto-enrolment can be paid and invested. However, there are employer responsibilities that must be carried out that NEST will not undertake on your behalf. The Creative Auto Enrolment solution will help provide all the support you need to carry out these additional duties.
Do I still have to comply with the employer responsibilities if I have an existing pension plan?
Yes. You still have employer duties even if you have a pension scheme that meets the minimum requirements. We can help you review your current scheme.
What penalties will I face if I don’t comply?
The Pensions Regulator will check that all employers are complying with the new rules. If you are found to be in breach of any of your responsibilities, you will be issued with a notice of enforcement. You have the right to challenge that notice. According to the outcome of the investigation, a penalty will apply. The penalty will very much depend on the nature of the breach, but for extreme cases could be a daily fine of as much as £10,000.
When would an employer use postponement?
As an employer, you have the right to postpone the enrolment of your employees for three months after the required commencement date of your scheme (also known as the ‘staging date’). This can reduce your costs significantly. There may be other benefits too. You may want to use the postponement facility for administrative reasons.
Is salary exchange permitted to meet the minimum contribution levels?
Yes. Salary exchange is where an employee can give up part of their salary or bonus to their pension fund, resulting in their gross salary being reduced and the employee paying less tax and national insurance. As an employer, you will make savings on your National Insurance bill, which you can then use to reduce your costs. We can show you how salary exchange can save you money and set it up for you.
I’ve been auto enrolled, but don’t want to start saving right now. How do I opt out?
You need to complete an opt out notice. This can be done from the outset in which case no contributions will be payable, or, at any future time, after you’ve been auto enrolled.
I thought everyone had to be auto enrolled into a pension scheme. Is this true?
You'll be automatically enrolled into your employer's pension plan if you:
- are aged between 22 and State pension age
- work or usually work in the UK and,
- earn more than £10,000 each year (for the 2014/15 tax year).
If you don’t fall into these categories, you will not be automatically enrolled, but you may still be entitled to join your employer's pension plan. However, whether your employer will contribute to your pension plan will depend on your earnings and your age. If you earn between £5,772 and £10,000, and are aged between 16 and 74, your employer will be required to contribute. Please note these figures may change from time to time.
What happens to the money I’ve saved if I die before retirement?
When you join your scheme, you will be asked to complete a ‘nomination of beneficiaries form’. If you die before you retire, your pension savings will be paid to your nominated person(s) as a tax-free lump sum.
If I join the scheme and move to another company what happens to my savings?
Speak to your existing employer to find out what type of scheme you are saving into. Some schemes will stay with you and you can continue saving into it wherever you work. With other schemes you will have to join a new scheme with your new employer, and then you can either transfer your the money from your previous scheme across to your new scheme, or you can leave it where it is. Before transferring one scheme to another, it may be worth speaking to a financial adviser, as it’s not always the best course of action.
Please note that the government is reviewing the existing practice in this area.
What do I have to do with my pension savings when I want to retire?
When you retire, you’ll receive a letter that tells you how much you’ve saved. This amount, less any tax free cash you take (see below), is used to provide an income in retirement. Most people buy a product called a lifetime annuity. This pays a guaranteed income for the rest of your life (much like receiving a salary). From April 2015 onwards it will be possible to take your whole pension fund as cash - but income tax will apply to the amount over your tax-free entitlement (usually 25% the fund).
Can I take any of my pension savings as cash when I retire?
Yes – you will be entitled to take a tax-free lump sum of up to 25% of your pension savings. The remainder of your pension fund must currently be used to provide income. From April 2015 it will be possible to take your whole pension fund as cash (but if you do this, income tax at your highest marginal rate will apply to the amount above your 25% tax-free entitlement).