What is Auto-Enrolment?
The Pensions Act 2008 laid the foundations for a fundamental change to workplace pensions in the UK. Pension scheme membership will move from a voluntary to a semi compulsory arrangement. Under the reforms, which commenced in 2012 and which are being phased in depending on Company size, every employer is required to automatically enrol their ‘eligible employees’ into a pension scheme. The employee must make a contribution to the scheme and the employer also pays a contribution to the scheme on the employee’s behalf.
Why is the government making pensions ‘compulsory’?
Statistically people are living longer. The ratio of workers to pensioners has declined and it’s estimated that as many as 7 million people are not saving for retirement. It is against this backdrop that the government has made the decision to ensure that employees are making a provision for their retirement.
Who is an ‘eligible employee’?
You will be an ‘eligible’ employee if you meet all of the following criteria:
- Are not already in a qualifying workplace pension scheme (e.g. the AA Pension Scheme)
- Are aged 22 or over
- Are under the state pension age
- Are earning a salary of at least £10,000 p.a. (under current rules)
- Work or usually work in the UK
I will not qualify as an ‘eligible employee’. Will I be excluded from Auto-Enrolment?
If you earn less than the minimum amount and/or fall outside of the age range you will not qualify for Auto-Enrolment but will be able to opt in to a qualifying workplace pension scheme if you wish. If you do so the Company may pay minimum contributions on the same basis as if you were an eligible employee.
What form of ‘qualifying pension scheme’ will The AA offer?
The AA’s existing defined benefit scheme meets the qualifying pension scheme criteria as set by the Government. In addition, the AA has established a new defined contribution scheme, the AA Group Personal Pension Plan (AA GPPP). This is a qualifying scheme and it is this scheme that is used for all employees subject to Auto-Enrolment.
I have heard about NEST pensions, what is this?
The Government has established a new pension scheme; the National Employment Savings Trust (NEST). This scheme is available for any employer who chooses to use it. It is specifically designed for the needs of employers who do not have any existing pension arrangements in which to enrol their employees. As the AA will provide its own qualifying pension plan for its employees, the Company will not be utilising the NEST facility.
Who will pay into the pension?
All employees who are Auto-Enrolled will pay into the AA GPPP and the Company will also make a contribution into the scheme.
How much will I be required to pay under Auto-Enrolment?
The Government has set minimum pension contributions for both employees and employers. To ease the burden of these contributions, the minimum payments are to be phased in as set out below. The AA will be using these ‘employer’ contribution levels.
||Minimum Employee Contribution
||Minimum Employer Contribution
|1 October 2012 – 5 April 2018
|6 April 2018 – 5 April 2019
|6 April 2019 onwards
After the initial contribution stage in April 2018 the employee will pay the majority of the total contribution although most employees will get a contribution from the Government in the form of tax relief.
When did Auto-Enrolment commence?
The requirement to Auto-Enrol is being introduced over a period of four years starting in October 2012, depending on the size of the employer. The largest employers were subject to the requirements first, followed by medium and then small employers. The AA was required to implement Auto-Enrolment in July 2013.
If I opt out of Auto-Enrolment does the employer still have to contribute?
No. Employers do not have to contribute if employees opt out of the scheme.
How is Auto-Enrolment implemented?
After a 3 month deferral period all eligible jobholders will be enrolled into the AA qualifying pension scheme and the appropriate deduction made from the employee’s salary (minimum 1%). The company will also make its own contribution to the pension scheme on behalf of the employee (1%).
Can I join the existing AA Pension Scheme?
Employees who are eligible under their contract of employment with the AA will still be entitled to join the AA Pension Scheme if they wish. However, if they do not join this scheme on or before the Auto-Enrolment date they will be Auto-Enrolled into the AA GPPP. Under the law they will need to be enrolled in at least one scheme unless the employee exercises their right to opt out of Auto-Enrolment.
Can I join both the AA Pension Scheme and the Auto Enrolment scheme?
Yes, although the Company will only make one employer contribution and that would be to the AA Pension Scheme. If you decided to join both schemes you would be required to fund the whole cost of the AGPPP.
What if I don’t want to Auto-Enrol?
If you decide you do not want to participate in Auto-Enrolment you will need to inform the pension provider (currently Legal & General) by completing an appropriate ‘opt out’ form within one month of receiving your letter confirming you have been Auto-Enrolled. If you do not opt out you will automatically continue to be a member of the AA GPPP.
What if I want to opt out of Auto-Enrolment after joining?
If you want to stop paying into the AA GPPP after joining, you can do so by informing the Company that you wish to cease and opt out. If you opt out or you stop making payments the company is legally obliged to enrol you back into the pension plan at a later date. This is usually every three years.
Will the Company keep me informed about Auto-Enrolment?
Yes. The Company will keep employees updated regarding Auto-Enrolment. There are legal obligations regarding communication with employees that the company must comply with. The AA will comply with these requirements and ensure employees receive all necessary information to enable them to make the correct decision about Auto-Enrolment.
I am interested in finding out more about pensions generally. Where can I get further information?