2 : 9 - Auto-Enrolment Legislation Flashcards
What has Auto-Enrolment Legislation been designed to encourage?
A retirement savings culture in the UK
What does Auto-Enrolment Legislation require?
All employers to automatically enrol, some or all, members of their workforce (depending on age and salary level) into a pension scheme that meets certain minimum standards.
How is Auto-Enrolment Legislation being phased in?
With the largest employers leading the way, followed by medium-sized employers and lastly small and micro employers. The size of an employer’s largest pay-as-you-earn (PAYE) scheme will determine at what point the new duties affect their organisation.
What is The National Employment Savings Trust (NEST) ?
NEST is an occupational, trust-based DC pension scheme. It will not be a SP, but this type of scheme will bring an element of compulsion to pension provision for employers. This time the compulsion will be to contribute, not just provide access, as was the case with stakeholder pension plans.
What are the contribution levels for he National Employment Savings Trust (NEST) ?
As with stakeholder pensions, employers will have to contribute at least 3% of each employee’s earnings (unless the employee opts out of the scheme) and the employees must contribute 4%.
With an additional 1% via tax relief, each employee will have a total of 8% of earnings paid into the scheme
EG:
Sean is an example of exactly the sort of client that advisers may come across.
He is aged 42 and married with two children of school age. He earns £75,000 pa, but still finds providing for his family tough. On the horizon, Sean is thinking about how to set aside enough for potential higher education costs, and about how the family also aspires to one more ‘trade-up’ to their dream home at some point. Lastly, Sean is thinking seriously about how he will afford to retire comfortably in the future. He had a tough time following the credit crunch, and a period of unemployment that has depleted much of his savings.
Long gone are the days when colleagues retired at 55 or even considered early retirement at 50; back then, they had a generously funded DB company scheme. Sean has come to realise that early retirement is no longer an option, and 67 is a more realistic age.
He is disillusioned with pensions: high charges, poor performance, and lack of access to his savings if needed and that £10,000 credit card debt is costing him £1,800 pa to service in interest alone.
It’s no wonder that adequate funding of his pension plan has not been a top priority. Sean’s company offers a 3% + 3% matched contribution scheme at present and has just written to him about changes it will be making due to auto-enrolment. He has recently considered opting out completely, to concentrate on clearing his personal debt.
What does Auto-enrolment require?
Employers to automatically enrol eligible employees into a WPS
What is the earnings threshold for Auto-Enrolment?
Contributions for 2018–19 are only payable on earnings above the current eligibility threshold of £10,000 pa and on earnings between £6,032 and £46,350.
(The employer must contribute when an employee earns £6,032 even though the employee only starts contributing at earnings of £10,000.)
What minimum contributions for Auto-Enrolment?
The minimum contribution must be 8% and the employer has to pay at least 3%
