Automatic pension enrolment is a government scheme that requires all employers in the UK to automatically enrol eligible workers into a workplace pension scheme and then make contributions towards it. The scheme was introduced as part of the Pensions Act 2008 and has been rolled out in stages since 2012.
All employers, including start-ups or those employing only a small number of people, should now be using auto-enrolment for qualifying employees.
Which employees should be enrolled automatically?
There are specific criteria for when an employee should be enrolled in a workplace pension scheme in the UK; these are:
- The employee must be working in the UK
- They must be aged between 22 and the current State Pension age (currently 66)
- They must earn £10,000+ a year (as of the 2023/24 financial year)
What is the minimum pension contribution from an employer?
Since 2019, the minimum pension contribution for employers is 3%. The total minimum contribution is 8%, so an employer contribution of 3% must be topped up by a further 5% contribution from the employee. Employers and employees may choose to contribute more.
These contribution levels are based upon the employer using the default contribution basis of Qualifying Earnings; however, other contribution bases are available, which require different contribution levels. The employee contribution is inclusive of tax relief (assuming this is paid on a relief-at-source basis).
Can employees opt out of automatic pension enrolment?
An employee may opt out of automatic pension enrolment by notifying their employer; however, employers will no longer be required to contribute either. Employees may only opt out after they have been enrolled automatically.
The employer may receive a refund of any contributions made if they opt out within the “opt-out period”. This is one calendar month after they have either been enrolled or have received the required letter notifying them of their enrolment. The opt-out period is based on which of these events happens last.
Ongoing pension responsibilities for the employer
In addition to the employees being enrolled into the workplace pension scheme, there are several ongoing responsibilities that they must be aware of throughout the employee’s tenure at the organisation.
- Regularly check the earnings and ages of employees so that they can be enrolled once they qualify.
- Make sure both employer and employee are combining to pay at least the minimum contribution each payroll (8% total, minimum 3% from employer).
- Keep accurate records of employees who are enrolled.
What is pension re-enrolment?
Every three years, employers must re-enrol any qualifying employees who have previously left the pension scheme back into the workplace pension scheme. This is known as re-enrolment. Even if there are no employees to re-enrol, employers must complete a re-declaration of compliance to ensure the Pensions Regulator knows they have met their obligations.