- Employees aged 16 to 21, or aged between state pension age and 75, who are working in the UK with annual earnings in excess of £10,000.
- Employees aged 16 to 74 who are working in the UK with annual earnings in excess of £6,136 but less than £10,000.
Employees can also give notice to an employer to become an active member of a scheme if they are working in the UK, aged between 16 and 75, and have earnings below £511 a month or £118 a week. This requires the employer to allow them to join the scheme and deduct any applicable employee contribution from their pay and pass it to the scheme. It does not, however, require the employer to make any payments to the scheme themselves.
Directors do not need to be included in auto-enrolment either, so a scheme may not be necessary for a company that does not have any employees and is solely run by a director. But it would need to comply as soon as it employs someone else.
Can any scheme qualify as a workplace pension scheme?
Many people ask if they can use a self-invested personal pension as a Qualifying Workplace Pension Scheme. There is no legislative reason why a Sipp or any other scheme could not become a such a scheme. However, there are a number of practical barriers that would mean the majority of Sipp operators are unlikely to facilitate one of their schemes being used in this way, including:
- It is unlikely that it could meet the charge cap of 0.75 per cent or equivalent.
- They are unlikely to be able to operate an investment governance committee.
These compliance requirements would need to apply to the whole of the registered pension scheme, not just the arrangements being used for auto-enrolment.
Final thoughts
Auto-enrolment remains a complex area that, if not dealt with properly, could result in significant fines for schemes and employers. Care needs to be taken, especially for those establishing a new business, to ensure they do not fall foul of the requirements.
It should also be noted that this is a minimum requirement for employers, and offering a better workplace pension is essential to attract employees. To this end there have been calls to reduce the earnings trigger to increase the level of contributions paid for lower earners in statutory schemes. This has been dismissed by the current government, but it should not be discounted for the future.
Claire Trott is head of pensions strategy at St James’s Place Group
