Pensions Auto-Enrolment

Pensions legislation now requires all UK employers to automatically enrol eligible workers into a work place pension and make mandatory minimum contributions. This short guide summarises your key employer pension duties and explains which kind of workers are eligible for auto-enrolment, the right to opt out of a pension scheme once a jobholder has been auto-enrolled, and the right of a non-eligible worker to opt in to an auto-enrolled pension scheme.

1. Auto-enrolment

The new duties for employers came into force on 30 June 2012 and have been phased in since, with larger employers being required to comply earlier. By 2018, all employers in the UK will be required to auto-enrol eligible workers – referred to in the legislation as “jobholders” – in a pension scheme meeting specific standards. A jobholder can opt out of the pension scheme into which he has been auto-enrolled (see below).

2. Who is eligible?

Employers should first assess if their workers are eligible for auto-enrolment. As a general rule, workers will qualify if they:

  • Usually work in Great Britain;
  • Are working under an employment contract;
  • Are aged between 22 years old and state pension age;
  • Have an annual income of at least £10,000 (for tax year 2016/2017); and
  • Are not already members of their employer’s qualifying scheme.
3. When do the new employer duties apply?

The Department for Work and Pensions (DWP) assigns each employer a “staging date”, with the larger employers being staged first. Smaller employers (those with fewer than 250 workers in its PAYE scheme on 1 April 2012) will be given a staging date falling between 1 April 2014 and 1 April 2017.

Employers who operate a PAYE scheme can find their staging date online (http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx) by entering their PAYE reference number.

Employers must provide the Pensions Regulator with a declaration of compliance within five months of the business’s staging date and must complete the declaration process online. If employers are already in a position to comply with the auto-enrolment regulations, they can also choose to bring forward their staging date by notifying the Regulator.

As the new employer duties apply to automatically by law once the business has reached its staging date, they do not constitute a change to a jobholder’s terms of employment requiring any consultation with jobholders. Neither is any consultation necessary under the legislation that requires consultation before changes to pension schemes are made.

4. Opt in and out

If an eligible jobholder does not opt out of the pension scheme, the employer will be obliged to pay minimum pension contributions (see below) as long as he remains an active member of the workplace pension scheme.

Automatically enrolled jobholders can opt out of the pension scheme. The opt-out period lasts for three years, which means that at the end of the three-year period, the jobholder must be auto-enrolled again, unless he chooses to opt out for a further period of three years. On the other hand, employees who were already a member of their employer’s scheme on the auto-enrolment date must terminate their membership according to the scheme policy.

Non-eligible jobholders may ask their employer to enrol them on the automatic scheme in order to receive the similar employer contributions as those employees who are auto-enrolled. If they do ask to opt in to the qualifying workplace pension scheme, employers must make contributions on their behalf.

5. Contributions

Employers have a duty to make contributions towards the workplace pension scheme on auto-enrolment. Currently the total minimum contribution (from employer and employee) is fixed at 2% up until 5 April 2018. Employers are responsible for 1% of this contribution.

The minimum contributions will increase and from 6 April 2019, the minimum total contribution will be 8%, with employers being subject to contribute 3% of this.  

For further information and advice about any of the topics covered in this guide, please contact our Employment Team.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© Miller Rosenfalck LLP, January 2017