1. What is auto-enrolment?
The new legal duty requiring all UK employers to automatically enrol their eligible employees in a pension scheme and pay minimum pension contributions to it.
2. When does auto-enrolment affect me?
Each employer has a “staging date” when they have to auto-enrol their eligible employees. The staging timetable runs from 1 October 2012 to 1 February 2018 with the largest employers being staged first. Your staging date depends on the number of workers in your PAYE scheme on 1 April 2012. You can find out your staging date by entering your PAYE reference here.
You can bring forward your staging date or temporarily postpone your auto-enrolment duties in certain circumstances.
3. Who do I have to auto-enrol?
The auto-enrolment duties apply to “jobholders”, which includes employees, temporary workers, directors employed under service contracts and agency workers (if you pay them directly).
The extent of an employer’s obligation to auto-enrol a worker depends on which of these categories the worker falls into.
The following table summarises the position for each category.
|Type of Worker||Age||Qualifying Earnings||Auto-enrolment duty|
|Eligible Jobholder||22 - State Pension Age
+ must be auto-enrolled
+ employer pays
|Non-eligible Jobholder (a)||16-21 OR SPA-74
+ can opt in to pension
+ if they do, employer
|Non-eligible Jobholder (b)||16-74||currently earning above £5,772 but below £10,000|
|Entitled worker||16-74||currently below £5,772||
+ can opt in to pension
+ but, if they do, no
4. What pension scheme can I use?
You can use an existing or a new pension scheme provided it meets the minimum requirements. Broadly, you must either:
- make a minimum contribution to a defined contribution arrangement; or
- provide membership of a defined benefit pension scheme or hybrid scheme which meets minimum benefit levels.
The scheme must also allow jobholders to be auto-enrolled without first being asked to provide any information (e.g. complete a form) or to express a choice (e.g. about the investment of contributions).
5. What about those who are already in a pension scheme?
Jobholders already in a compliant scheme do not need to be auto-enrolled. You will need to check whether your existing pension scheme is compliant. If not, you may have to amend the scheme to make it auto-enrolment compliant. This may require employee consultation.
6. What happens after I’ve auto-enrolled at my staging date?
Processes need to be put in place to monitor the ages and earnings of staff so that you can identify when existing jobholders and new joiners become eligible to be auto-enrolled.
Processes also need to be established to allow those who have been auto-enrolled to opt out of membership. Those who have opted-out must also be automatically re-enrolled (if they continue to be eligible) every three years.
7. Can I use ‘salary sacrifice’ for pension savings in conjunction with auto-enrolment?
Employers commonly offer employees the opportunity to contribute to their pension arrangement via salary sacrifice (also referred to as ‘salary exchange’). Under salary sacrifice, an employee agrees in advance to a contractual reduction in pay, which creates a National Insurance Contributions saving.
An amount equivalent to the reduced salary is then paid into the pension scheme by the employer on the employee’s behalf in additional to the employer’s contribution, thus making the pension scheme non-contributory for members.
Salary sacrifice can still be used in conjunction with auto-enrolment, however, care needs to be taken over how this is operated. An employee has to expressly agree to salary sacrifice, which could create timing issues for schemes not operating waiting periods since the member would need to sign up to salary sacrifice before being automatically enrolled.
Also, because auto-enrolment is all about employees not having to sign, chose or return anything, salary sacrifice cannot be compulsory as has often been the case in the past. To comply with auto-enrolment, a non-sacrifice alternative must be available.
The key to operating salary sacrifice alongside auto-enrolment is to document the sacrifice agreement in a way which allows the employer to comply with its auto-enrolment duties.
8. What do I tell my staff?
You must communicate with all staff to explain how auto-enrolment will affect them.
For those who have been auto-enrolled, certain information must be provided to them in writing within one month, including details of the pension scheme, the contributions payable, the tax relief given and notification of the right to opt-out.
Separate communication obligations apply for jobholders who are already members of a compliant scheme, non-eligible jobholders and entitled workers, and if you decide to temporarily postpone your auto-enrolment duties.
9. How do I go about this?
While each employer will be different, it is essential to consider how auto-enrolment will fit in with your future HR strategy and remuneration policy. Administration and payroll systems may need to be adapted. Many of our clients have found it useful to establish a team responsible for implementing auto-enrolment.
10. What happens if I don’t get it right?
If you do not comply with the auto-enrolment requirements, the Pensions Regulator may intervene and require remedial steps to be taken or impose financial penalties.
Employers are prohibited from offering any form of inducement to an individual to opt out of a compliant scheme. Again, the Pensions Regulator will monitor compliance.
How we can help?
Our pensions and employment teams have considerable experience in advising on all aspects of auto-enrolment from the initial strategy stage right through to implementation.
If you would like to find out more about automatic enrolment and how we can support you in meeting your duties under the new regime please contact one of the team.