Auto enrolment – defining the worker

Financial Planning has not yet seen the day when pension schemes are compulsory, but that day is surely closer as auto-enrolment outlines some of the hurdles that employers must jump. As an IFA, my role is to help both employers and employees to make best use of pension arrangements.

The new auto-enrolment pension rules come into effect at the end of October. There are three categories of employee that must be automatically enrolled into a pension scheme by their employer. I draw your attention to use of the word “must” – which means must. The first and easiest group to identify are those that are eligible, this means aged between 22 and State retirement age, working in the UK and earning more than £7,475 a  tax year. Note though that this sum will probably be revised (upwards) by the Government and is likely to be linked to national insurance levels or the personal allowance. The second category is what might be described as “keen savers” – employees that fall outside of the automatic criteria, earn between £5,035 and £7,475 but want to join the scheme and have a right to do so. Employers must make it easy for these people to opt in and must also contribute along the same lines. Finally a group that the Pensions Regulator call “Entitled Workers” who earn below £5,035 and don’t qualify for auto-enrolment. The employer doesn’t have to make payments and can offer a different pension scheme. Confused? well here’s a diagram from the regulators website.

Thoughts – the limits will be revised annually, so in reality employers have to keep an eye of eligibility rules. The easiest solution is to simply make the scheme available to all under the same terms, this should prevent breaching any rules.