PENSIONS - 17.09.2020

Who’s eligible for minimum pension contributions?

Research findings

At the end of August 2020 the Resolution Foundation, an independent think tank which focuses on improving living standards, released its research findings into pensions auto-enrolment.It suggests that at least one in 20 workers aren’t receiving the correct minimum legal pension contributions.

Small sample

As the data came from a limited sample, the findings could be inaccurate; non-compliance may potentially be lower or higher. Either way, the researchers found that pensions auto-enrolment errors often arose simply because employers didn’t understand the rules. Which workers are automatically eligible for minimum pensions contributions?

Eligibility criteria

The right to be auto-enrolled in a workplace pension isn’t available to every worker. It only applies to those individuals who are:

• aged between 22 and state pension age
• earn at least £10,000 p.a.
• ordinarily work in the UK; and
• aren’t already in a qualifying workplace pension scheme.

Since 6 April 2019 the employer’s minimum contribution has been 3% and the employee’s minimum contribution, 5%, i.e. a total minimum contribution of 8%.

Financial contributions

These rates don’t apply to a worker’s entire salary - only to what they earn over a minimum amount and up to a maximum limit. For 2020/21, the minimum amount is £6,240 and the maximum is £50,000 before income tax and NI deductions.

Tip. Eligible workers must be given certain prescribed information about their auto-enrolment rights and how they can opt out (see The next step ). An opt-out isn’t permanent - you must re-enrol employees every three years and an employee may opt back in at any time (assuming the eligibility criteria are still met).

Entitled workers

In addition to eligible workers, there are entitled workers. They don’t have to be automatically enrolled into a qualifying workplace pension scheme. Their right is one of being able to join a workplace pension scheme, which could be different to your auto-enrolment scheme. Entitled workers are those who are aged at least 16 but under the age of 75 and earning less than £6,240 per year (for tax year 2020/21).

Tip. You can choose whether or not to make employer contributions for entitled workers who do join a qualifying pension scheme.

For an eligible job holders automatic enrolment letter, visit https://www.tips-and-advice.co.uk, Download Zone, year 22, issue 16.