This jargon buster helps explain some of the terms that The Department of Work & Pensions and The Pensions Regulator are using when talking about auto enrolment… in plain English!
As a small business owner we know that you wear many hats and spin many plates. So, to save you time (and considerable headaches), we’ve taken the complex terms and translated them into something that makes sense.
A new type of work-based pension that automatically enrols anyone who qualifies for the scheme. Often shortened to “Auto Enrolment”. Read more about auto enrolment.
Defined Contribution scheme
You need to examine whether or not your existing scheme qualifies for automatic enrolment according to the rules set by the Department for Work and Pensions.
Employees working in the UK, above the age of 22 and below the state pension age earning more than £10,000 (the figure will be reviewed every year). Employees meeting these criteria must be auto enrolled. Find out more about employee eligibility.
These employees have the right to join the pension scheme if they wish, as long as they’re aged 16 – 74; working in the UK and earning below £5,772. (The employer only has to make a contribution for entitled workers if it is part of their contract of employment.)
All employees that meet the criteria above MUST be auto enrolled and unless they opt out (see below), the employer must also make contributions (also see below) to their pension pot. Inducement is when an employer encourages an employee to opt-out of an automatic pension scheme, this is illegal!
NEST (National Employment Saving Trust) is a pension scheme that must take all employers who apply to join. This is because it is a government scheme that has been created to guarantee that employers that employ low earners can access pension saving and fulfil their automatic enrolment compliance duties.
These are employees who are either:
- Aged 16 – 21 or State Pension Age (74) working in the UK and earning above £10,000
- Aged 16 – 74, working in the UK, earning above £5,824* a year but below £10,000* and have a right to opt in to their employer’s pension scheme.
This is the responsibility of the employee and not the employer. It’s the process of an auto enrolled employee choosing to halt contributions to a workplace pension scheme.
Employers may choose to delay the deadline by up to three months after their staging date.
The government has set a minimum level of contributions that has to be put into a ‘Defined Contribution Scheme’ (see below) by employers and workers. This minimum amount increases over five years until all UK employers meet their obligations, this is called phasing.
A pension scheme that meets or exceeds the contribution or benefit levels set by the government.
Staging is the staggered introduction of auto enrolment. The largest of employers were required to get underway last year but your staging date (see below) will depend on the size that your business was on 1 April 2012.
Your staging date is the date from which you must begin the registration process of auto enrolment.
Every three years employers must automatically enrol eligible employees who have formerly opted out. It is up to the employee to once again opt out.
An individual who has entered into or works under a contract of employment, or any other contract by which the individual undertakes to do work or perform services personally for the other party to the contract.
*Automatic enrolment earnings thresholds for 2015/2016 and correct at time of publishing. These figures are expected to change each tax year.