Auto-enrolment affects every business with employees. As an employer, you must put certain staff into a pension scheme and make pension contributions. You should also be ready to answer questions from employees who want to understand the scheme and how they will be affected.
It's important to remember that you are not qualified to give financial advice, so you need to be careful with your answers. Common questions employees have are listed below, along with guidance to help you answer them.
"What are the new pension changes?"
The auto-enrolment pension changes set out new rules on what pension scheme the employer must offer. Employees will want to know that:
- There are rules on the minimum level of contributions that must be paid into the scheme. The employer must pay at least part of these, but the employee can also be required to make a contribution.
- Most employees (apart from those with low pay) will be automatically enrolled into the scheme. Employees can opt-out if they want to.
"Will I be in the pension scheme?"
If an employee is between 22 and state pension age, and earns at least £10,000 a year, you should tell them that they will be automatically enrolled in the scheme (but can choose to opt out if they wish).
You should tell younger employees and lower paid employees (earning at least £6,136 a year) that they will be able to choose to opt in to the scheme if they want to.
You should tell any employee earning less than £6,136 that they can join a pension scheme if they want but that you, as the employer, do not have to make any contributions.
Of course, if you decide to offer a more generous scheme (for example, making contributions for all employees regardless of age or income) you should tell your employees so.
"What happens to my existing pension scheme?"
What you need to tell the employee depends on how you have decided to introduce the new auto-enrolment pension scheme.
You may have chosen to retain your existing pension scheme, while making any changes needed to make sure that it complies with the new rules. If so, you can explain that the existing pension scheme is continuing, and outline what changes are being made (for example, to contribution levels).
Alternatively, you may be introducing a new pension scheme. The employee may be able to leave existing savings in the old pension scheme until retirement, or to transfer the savings they have built up to the new scheme. You should tell the employee to contact the existing pension scheme provider, or an independent financial adviser, to discuss their options.
"How much will I have to contribute?"
The answer you give will depend on how large an employer contribution you decide to make to the pension scheme.
The auto-enrolment rules set out minimum contributions that must be made by the employer, and minimum total contributions (including any employee contributions). You can find details in pensions for employees.
If you make only the minimum employer contribution required (3% from April 2019, ), then employees need to contribute at least 5% of qualifying earnings (between £6,136 and £50,000), from April 2019.
If you make more generous contributions than the legal minimum, the employee's legally required contribution will be reduced - or even zero.
"Should I opt out?"
As an employer, you should let your employees know that they have the right to opt-out but must not advise or encourage them to do so. You might want to suggest to any employee thinking about opting out that they take independent financial advice.
"When will my pension start?"
Traditionally, most individuals have started taking their pension when they retire, often at state pension age. But most pension schemes now allow the individual to start taking their pension from the age of 55, even if they are still working. As a rule, the earlier the individual starts taking their pension, the lower their annual retirement income is likely to be.
The details will depend on the particular pension scheme you have decided to provide. You can give the employee a copy of any information from the pension scheme provider.
As an employer, there are two other points that you should be aware of and may want to mention to the employee:
- The auto-enrolment rules only require the employer to make contributions to the pension scheme until state retirement age (though you may choose to continue beyond this).
- There is no longer any default retirement age when an employee must stop working.
"What happens if I die before retirement?"
Typically, the value of the deceased employee's pension pot is paid out to his or her dependants such as a partner or children. But some occupational schemes provide a pension for a surviving partner.
From the employee's point of view, the main thing is to explain that the pension will not be 'wasted'.
"How can I get as big a pension as possible?"
As an employer, you must not provide financial advice.
You may want to suggest that your employee seeks independent financial advice. You can also choose to offer each employee up to £150 to help pay for independent financial advice as a tax-free benefit.
You may also want to suggest that an employee contacts the Pensions Advisory Service to find more guidance on pensions or to ask particular questions.