Under auto enrolment rules, workers earning less than £112 per week (the lower band of qualifying earnings), are assessed as “entitled workers” and aren’t automatically enrolled into a workplace pension scheme. They are permitted to opt in to the scheme, but if they do that, the current qualifying earnings bands mean that their contributions are only calculated on earnings over £112. As they wouldn’t have any earnings above this threshold, nothing would be paid into the pension. A bit of a catch 22 scenario!
When a worker opts in and their pay is less than the lower band of qualifying earnings in that particular payroll period, then the auto enrolment rules don’t require the employer to contribute. If that same worker has variable earnings in the first week after opting in, it may mean that they had just a low earning week. Any worker whose pay had previously been above the lower band, would have probably expected contributions to remain the same and be made as normal into their workplace pension scheme. The worker might easily then feel cheated and could cancel their joining request, or at the very least, need a good explanation from their employer of how the rules in practice work.
In our experience, the number of entitled workers who actually do opt in is low, although we believe that if they are keen to do so, then they should not be discouraged.
NOW: Pensions’ solution
Our solution to this conundrum is that we ask that if entitled workers are enrolled into the NOW: Pensions scheme, then employers commit to paying the minimum contribution rate for them. Even though the letter of the law doesn’t require this, we think it’s the fair and right thing to do. The amounts involved are likely to be very small (and when the worker has no band earnings they will be zero), so we hope you agree with our approach.
As part of the imminent 2017 auto enrolment review, we’d like to see both the auto enrolment trigger (currently £10,000 per annum) and the qualifying earnings bands removed, so that the lowest paid workers get a chance to save for their retirement, rather than being caught out by complexities in the legislation. We have been lobbying for this for some time and will continue to do so in the New Year.