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According to 2008 Pension Law, every employer in the UK must contribute to the pension scheme by enrolling their employees. This is called 'Automatic' as employees do not have to do anything, because everything is prepared by the employer.
In simple words, the 'Automatic Enrolment' supports the employee’s pension scheme and comes from both the employer as well as the state. It is important to note that it is not part of the basic pension which is formed through National Insurance Contribution.
The employer is obliged to pay part of the minimum total contribution. However, if the employer does not pay the whole of the minimum total contribution, the employee will have to pay the difference of the contribution and the government will contribute to it by providing tax relieves on contributions. This means that the contributed amount will not be taxed.
The minimum total contribution to the scheme is usually based on the “qualifying earnings”, of employee income from employment before deducting income taxes and National Insurance Contributions varying between 'lower' and 'upper' income thresholds, which of course are determined by the government.
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EXAMPLE: Let's say that your employer contribute only the minimum amount to the scheme. Therefore, the minimum total contribution as percentages of your 'qualifying earnings' is as shown below:
According to law, the employer’s responsibilities commence on the day the first member of staff starts work. This is known as 'staging date'. However, it is important to know that the sole Manager and the only employee of a company is not considered as an employee for the purposes of this specific definition. Therefore, if someone is the sole Manager-employee and has no other employee with a contract, they are excepted form the above responsibility.
It is also important to know that this law applies to employees who:
⤷ lives and works in the UK
⤷ are between 22 years old and State Pension age
⤷ have income higher than £10,000 annually
⤷ Normally working in the UK under a contract of employment
You can use the Staging Date Calculator to find out when you should enroll. This guide provides all the dates as stages.
Once you enroll to the HMRC as an employer, the system will automatically put you on the list of the Department for Work and Pensions employers. You will then be notified regarding when you should start deducting pension contributions from your staff salaries. For more information, please click here for step by step guide of the Pension Regulatory Authority to prepare for Automatic Enrolment.
The legislation that obliges employers to contribute, has been criticized by various bodies and businesses. As a result, it has been relaxed and enabled the employee to choose whether to register or not in this pension scheme. In any case, whether the employee wishes to enroll or not, the initial enrollment must proceed. After that, if the employee does not wish to be enrolled, he/she can be removed from the scheme. This process and the relaxation of regulation however, has also been criticized as it is believed that due to the law not being strict, employers can press the employees to be removed from the scheme.
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Translated / Edited by, Apostolia Nestoratou.
© 2018 UPECO LTD
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ATTENTION!
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.