Pensions Auto-Enrolment Begins

A reform of UK workplace pensions has begun – auto-enrolment into a workplace pension began on 1st October 2012 for some employers and will eventually affect all businesses with employees in the UK.

The aim of auto-enrolment is to make sure that all employees (particularly low and middle earners) are given a top-up pension, partly funded by their employer, to complement any personal savings and state pension. Under the scheme, if an employee is aged over 22 and is not already part of a workplace pension scheme, a part of their wage packet will automatically be diverted to a pension pot. At first, this contribution will be a minimum of 0.8%, of their pensionable earnings and their employer is obliged to add the equivalent of 1% of their employees earnings to the pot, with tax relief adding another 0.2%. Eventually, the aim is that minimum contributions will rise to 4% from the employee, 3% from the employer and 1% in tax relief.

The UK government believes that auto enrolment is essential, due to the increasing gap in pension provision, a workforce that has an increased life expectancy and an over reliance on the state pension when employees reach retirement age.

It is hoped that the new system will significantly increase pension saving – last year, only one in three private sector employees were signed up to a scheme. The Government Department of Work and Pensions said that by the end of 2012, about 600,000 more people in the UK would have a workplace pension due to auto-enrolment, and by May 2014, roughly 4.3 million people would be signed up to the scheme. The eventual aim is to have between six and nine million people added to the scheme by the end of 2018, when auto-enrolment will cover all employers in the UK.

The new rules are complex, its important to carry out an assessment on the impact this may have on your business and if you have any queries about auto-enrolment, please contact Gordon Birrell at Chiene + Tait Financial Planning on 0131 558 5800 or email