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Workplace pensions and automatic enrolment
04/05/2016

The introduction of automatic enrolment for workplace pensions is intended to ensure that the majority of employees begin to make proper provision for having a work based pension. Automatic enrolment into workplace pensions has been rolling out across the UK since 2012. However, the first batch of small and micro employers with 30 or less employers only began to enrol in the scheme on 1 June 2015. There are estimated to be 1.8 million small and micro employers in the UK.  It is expected that all employers will be part of the scheme by February 2018.

Once a workplace scheme commences, both the employer and employee need to make contributions to a pension scheme. There is a minimum employer contribution that will eventually reach 3%. Employers can make higher contributions if they so decide. Employees must also make contributions which are part funded by tax relief. By 1 October 2018, contributions in total will be a minimum 8%: 3% from the employer, 4% from the employee and an additional 1% in tax relief. There are options for employees to opt out of the scheme.

The Department for Work and Pensions (DWP) has recently announced the thresholds for the 2016-17 tax year. For the current tax year this is set between £5,824 and £43,000 a year. This means the lowest qualifying earnings level is £5,824. The first £5,824 of an employee’s earnings isn’t included in the automatic enrolment calculation. For example, if a worker earns £20,000 their qualifying earnings would be £14,176. The maximum amount contributions can be based on is £37,176 (£43,000 minus £5,824).


 

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