Pension Auto Enrolment

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You must automatically enrol certain members of your workforce into a pension scheme and as an employer, you will need to make a contribution towards it. The law will come into force for large employers from 2012.

Even if you already offer pension arrangements for your workers, you will still have some new obligations to meet.

Workers known as ‘eligible jobholders’ will need to be automatically enrolled into a pension scheme that meets a number of conditions based on the level of contributions paid or the benefits that they receive. Eligible jobholders may choose to ‘opt out’ of the scheme, but only after they have been automatically enrolled by you.

You will also have a requirement to tell any other workers you may have that they can opt in to the pension scheme, and to tell all your workers what kind of scheme you have chosen.

Eligible jobholders

Workers you will need to automatically enrol are known as ‘eligible jobholders’. These are workers who:

1. Earn more than the minimum earnings threshold and

2. Are aged between 22 and state pension age and

3. Work in the UK.

Why are the changes being introduced?

People are living longer and are likely to enjoy a longer retirement. But many people are not saving for their retirement at all, and many who are saving aren’t saving enough.

These changes will give many more people the chance to save for when they retire. The main benefits for your workers are that you pay a contribution and that it is an easy way for them to save.

When do the changes come into effect?

Each employer will be given a date from which the changes will have to be in place. This is known as your staging date.

  • The first staging dates will be in October 2012.
  • Your staging date will be broadly based on the number of people you have in your PAYE scheme
  • Employers with the largest number of workers will have the earliest staging dates.
  • The Pension Regulator will contact you 12 and 3 months before your staging date.

What will I have to do?

You will have to automatically enrol your eligible jobholders into a qualifying pension scheme and make an employer contribution towards it.

The main things you must do are:

  • Provide a qualifying scheme for your workers.
  • Automatically enrol all eligible jobholders into the scheme.
  • Pay employer contributions for eligible jobholders to the scheme.
  • Tell all eligible jobholders that they have been automatically enrolled and they have the right to opt out if they want to do so
  • Register with ‘The Pension Regulator’ and give them details of your qualifying scheme and the number of people that you have automatically enrolled.

You must not:

  • Encourage your workers to opt out of the qualifying pension scheme.
  • Have recruitment practices that will benefit job applicants who indicate they are prepared to opt out.
  • Treat a worker unfairly or put them at a disadvantage because of automatic enrolment.

What contributions will I have to make?

You must contribute at least 3% of your worker’s earnings (there is a phasing in of contributions with a minimum employer contribution of 3% expected on full implementation in 2018), although you can choose to pay more if you wish. The worker will be responsible for paying the rest. They will get tax relief on their contribution and the total combined contribution will be a minimum of 8%.

Contributions will be based on a band of ‘qualifying’ gross annual earnings. When working out your contribution, you do not need to consider any amount your worker earns above the upper earnings threshold.