UK News

Auto-enrolment - an update, and possible delays for smaller employers

May 2012

A number of changes to auto-enrolment have been announced, including changes to the auto-enrolment earnings trigger and proposed delays for smaller employers.

Earnings trigger and the range of qualifying earnings

These changes affect employers as they determine both when employers are obliged to contribute to employees’ pensions and the amount of earnings on which employers must contribute.

In order to be automatically enrolled an employee must meet certain criteria, one of which relates to earnings. (Please see the link in the 'Resources' section below to an article which sets out the other criteria for being an 'eligible jobholder'). Following the Department of Work and Pensions’ ("DWP") announcement, and conditional upon Parliament’s approval, the amount an employee must earn to be an eligible jobholder will be £8,105.

The employer (and the employee) must contribute a specified percentage of the auto-enrolled employee’s 'qualifying earnings' to the employee’s pension scheme. The lower and upper limits set out below define the range of 'qualifying earnings'.

The DWP have laid a draft order before Parliament setting out the following:

  • an earnings trigger of £8,105 (which is equal to the personal allowance for income tax).
  • the lower limit of the qualifying earnings band of £5,564 (equal to the lower earnings limit for national insurance purposes).
  • the upper limit of the qualifying earnings band is £42,475 (equal to the upper earnings limit for national insurance purposes).

The changes are designed to simplify the position for employers by aligning the auto-enrolment triggers and limits with existing income tax and national insurance thresholds.

Employers may start auto-enrolment early

The Pensions Regulator has confirmed that employers may start auto-enrolment early. This is conditional on the following:

  • the employer has an existing ‘staging’ date;
  • the employer’s pension scheme provider has agreed to bring the staging date forward;
  • the Pensions Regulator has received the required information and at least 1 month’s written notice of the new staging date; and
  • the Pensions Regulator has confirmed the new staging date.

The ‘staging’ date is the date by which employers must have an auto-enrolment scheme in place for their employees. Employers will be contacted by the Pensions Regulator 12 months in advance of their staging date.

Auto-enrolment delay for small businesses and new employers

The DWP has issued a consultation paper on delaying the staging dates for small (less than 50 workers) and medium sized employers (less than 250 workers) and for new employers. We will provide an update of any new staging dates once the results of the consultation have been published.

Commentary

The alignment of the earnings trigger and the lower and upper limits of the qualifying earnings band with the relevant income tax and national insurance limits for 2012/2013 are to be welcomed as this should simplify matters for employers. However, it is unclear as to whether the auto-enrolment thresholds will automatically change when the personal allowance increases and the higher earnings tax bracket decreases next year and therefore, clarification on this point is required.

Resources

Pensions update – auto-enrolment

For further information or to discuss the issues raised, please contact David Widdowson on +44 (0)20 3051 5711.

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