5 myths about auto enrolment busted

March 31, 2018

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It’s been 2 months since the last staging date deadline for auto enrolment and by now all businesses should be compliant to auto enrolment legislation. But auto enrolment is an ongoing process and there are still many doubts and myths around. Here are a few of the most pressing myths about it debunked:

1st Myth: Auto enrolment means every worker will be forced to save into a workplace pension

Truth: Workers will only be eligible for auto-enrolment if they fulfil the following criteria:

  • They must be aged between 22 and the state pension age,
  • Working in the UK and
  • Earning above the minimum earning threshold.

Meeting these criteria means a worker is classed as an ‘eligible jobholder’ and will be automatically enrolled into their work pension scheme.

But even ‘eligible jobholder’ are able to opt out of their workplace pension scheme by expressing that wish to their employer. If they opt out within the first month of auto-enrolment, they will receive a full refund for any contributions made. After the first month, they can still opt out, but won’t receive any refunds.

If a worker is not within the age bracket but meets the other two criteria, they won’t be automatic enrolled to the workplace pension scheme, but they can request to be enrolled and their employer must enrol them and make contributions to their pension fund.

2nd Myth: Once you’ve staged for auto-enrolment, you don’t need to do anything else

Truth: Within five months after staging date, employer must file a Declaration of Compliance, which is crucial to comply with the law. But that is not all.

Auto-enrolment is an ongoing process – employers must continually assess workers to make sure they enrol anyone who becomes eligible into a pension scheme. Employers also need to re-enrol any employee who might have opted out every three years. And for each of this tasks, appropriate communications must be sent.

For example: One of your employees earns £14,000 a year and during the last pay period they have turned 22. They will now be an eligible worker and should be automatically enrolled onto a pension scheme and sent the relevant communications.

A survey by CEBRA estimated that managing the requirements of automatic enrolment can take up to 3.5 days per month of administration time.

3rd Myth: My business is compliant if it already has a pension scheme

Truth: First of all, your existing pension scheme must meet certain criteria established by the auto enrolment legislation. You will need to check that with your provider.

Even if your existing scheme is a qualifying one, you still have to assess your workforce and auto enrol any employees who are not currently members of the existing pension scheme, ensure all contributions from previous and new members meet the minimum levels set by the government and declare compliance within five months of your staging date.

You will also have to write your employees letting them know how auto-enrolment will impact on them.

4th Myth: Employees can permanently opt out of their workplace pension scheme

Truth: Employees can opt out if they do not wish to contribute to a workplace pension scheme, however, employers must reassess their situation every three years and if they fall into the ‘eligible jobholder’ category they must be enrolled again.

5th Myth: Employers can encourage workers to opt out of auto enrolment

Truth: Employers can be subject to penalties if The Pensions Regulator understands they are doing any of the following:

  • Favouring job applicants who are willing to opt out;
  • Encouraging workers to opt out; or
  • Treating employees unfairly because they won’t opt out
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