When it comes to individual finance, retirement plans and elements like post-retirement finance, pension, and wealth accumulation are of great significance. This is where the pension auto enrolment threshold becomes highly relevant. The auto enrolment pension threshold in the UK is the minimum amount of earnings based on which employers can enrol employees for the workplace pension scheme. The pension auto enrolment threshold is determined by a wide range of factors, which include your earnings, your age, some additional earning criteria and of course you have to be a working person within the territories of the UK. This initiative, mandated by the UK government, is designed to ensure that individuals have a robust savings plan for their retirement. The easy and smooth initiation of the auto enrolment pension threshold largely depends on the efficiency and employment criteria laid down by the employers.
In this blog, we will run you through a step-by-step guide to the pension auto enrolment threshold for your employees.
A Brief on Pension Auto Enrolment Threshold
Before we kick off our discussion with a detailed guide about how as a business owner or an employer you can navigate through the nuances of the pension auto enrolment threshold, it is important to have a fair idea of what auto enrolment pension threshold is. If the employees working in the UK, meet the necessary or mandated age and earnings, then their employers are obliged to enrol them for auto pension. The threshold is the earning limit of the employee that triggers if he/she is eligible for auto-enrolment for workplace pension by the employer.
Additionally, there is a qualifying earnings band for which respective contributions are made; this band is determined by the upper and lower earnings limits (UEL and LEL, respectively). The earnings triggers of LEL, and UEL, are collectively referred to as the Automatic Enrolment Earnings Criteria. The legislation establishes them, and they are evaluated yearly. The yearly review reports outline the approach, results and the analysis that has been carried out.
Earnings Thresholds for Auto Pension Enrolment
- Employees or workers who are in the age range of 22 and the State Pension age, and have an earning of £10,000 are eligible for the pension auto enrolment threshold e., eligible for auto-enrolment in the workplace pension plan.
- If you earn less than £6240, though you won’t be eligible for the auto-enrolment pension threshold, you can ask your employer to give you access to the pension scheme and save for it. Note to seek this arrangement, you should be between 16 and 75. Also, you can save in the pension but the employer is not obligated to contribute in the same.
- If your earning is between £6240 and £10,000 (inclusive), it won’t trigger an auto enrolment pension threshold, but you will have the right to opt for the workplace pension scheme. To be able to opt in, your age should be 16 – 75 and you will be eligible for the minimum level contribution from the employer for the pension fund.
Note that every tax year, as a part of the statutory requirement, the Secretary of State has to review all three thresholds. It is important that both as an employer and an employee you stay updated about these yearly reviews. In case, you are an employer with a wide business set-up, it is best recommended to take the help of an expert. Several well-updated and experienced accountants in London can not only keep you aware of the yearly updates but also offer a wide range of financial services.
Step-by-Step Guide to Pension Auto Enrolment Threshold
From an employee’s perspective, the pension auto enrolment threshold will trigger if your earning is more than £10,000. If your earning is less than this threshold, you can simply inform your employer that you want to opt in for the workplace pension plan.
From an employer's perspective, the pension auto enrolment threshold can be a tedious arrangement, as there can be different earning thresholds, multiple employment criteria, various age groups, and other factors that can affect workplace pension requirements and norms. Here is a step-by-step guide for employers to manage and navigate the auto enrolment pension threshold.
- Understanding the Need: The auto enrolment pension threshold is mandated by the law. As an employer, you are obliged to enrol employees for workplace pensions if they meet the eligibility criteria.
- Identify Eligible Employees: Once you realise the obligatory nature of this initiative, the succeeding step is to identify the eligible employees. For this, you have to be updated about the criteria, which primarily include ages and earnings.
- Consider the Earning Threshold: The next immediate step is to consider the earnings of all your staff. It is the earning amount that triggers the pension auto enrolment threshold.
- Categorisation of Employees: Once you have identified the workers who are eligible for auto-enrolment of the workplace pension, categorise them as the ones who would be mandatorily part of the pension, who are not eligible but have the right to opt in and who want to join but are not automatically enrolled. Note that some employees may even choose to opt out, and you should have a distinct list of the same as well.
- Include Eligible Employees in the Payroll Process: Those with earnings eligible for pension auto enrolment threshold, should then be accordingly included in the payroll process. This is to ensure that your payroll process can identify the auto enrolment pension threshold of the eligible employees.
- Automatic Enrolment: Until this step, all the aforementioned steps are the groundwork for auto-enrolment for workplace pension schemes. In this step, deduct their contribution for pension from their earning, and add it to their pension fund, along with your i.e. employer’s contribution for the same.
- Submit Declaration of Compliance: As mentioned before, the pension auto enrolment threshold is a mandatory requirement, Subsequently, within 5 months of the staging date, you will have to submit a Declaration of Compliance to The Pensioner Regulator, as proof of your compliance adherence.
How We Can Help?
As an accounting firm, Unicorn Accountants specialises in guiding employers through the intricacies of pension auto-enrolment in the UK. Unicorn Accountants assists employers in understanding and meeting their auto-enrolment obligations, ensuring compliance with current regulations and thresholds. Additionally, we also extend support to employees uncertain about their eligibility, offering clarity and assistance in navigating the auto-pension enrollment process. With Unicorn Accountants, both employers and employees can confidently navigate the evolving landscape of pension regulations.