Automatic Enrolment

The Pensions Act 2008 laid out new employer duties, including automatic enrolment into a pension scheme.

An overview of the employer duties

Starting from October 2012, any UK employer who employs at least one person will be legally obliged to:

set up and register a pension scheme suitable for automatic enrolment
automatically enrol certain workers (known as eligible jobholders) into that pension scheme
arrange membership of a pension scheme for certain other workers
make contributions for eligible jobholders and certain other workers
manage the automatic enrolment, joining and opt out processes
provide specific information to workers, pension scheme providers and The Pensions Regulator (TPR)
keep records of how they have fulfilled and continue to fulfil their duties.

When it's happening

The employer duties will be introduced in stages from October 2012. Larger employers will have their duties imposed first, smaller employers last. TPR will generally determine the size of the employer based on the Pay As You Earn (PAYE) scheme information available to them on 1 April 2012. Any fluctuation in the number of people in the PAYE scheme after that date will not change the staging date.

Employers with less than 50 people in their PAYE scheme will have their staging date set depending on the last two characters of their PAYE reference number. Micro employers who share a PAYE scheme will have separate staging arrangements. Micro employers are defined as those with less than 10 full time workers immediately before 1 April 2011 who are part of a PAYE scheme with a total of more than 239 people.

Employers may employ certain types of worker where there is no need to operate a PAYE scheme. For example, where workers are employed on a personal service contract and there is no requirement to deduct and pay PAYE tax. In these cases, the staging date will be 1 February 2016.

A full list of staging dates based on changes proposed by the latest DWP draft regulations can be found in the Employer staging dates table.

Employer Duties Explained

Eligible jobholder - automatic enrolment

Within one month of an eligible jobholder's automatic enrolment date (for example the day they start work), the employer must provide them with certain information. This must include details of when they will be automatically enrolled, their right to opt out and the terms and conditions or details of the scheme into which they will be automatically enrolled. Once an eligible jobholder is automatically enrolled, the employer must continue to deduct/make contributions as long as they remain in the scheme.

Non-eligible jobholder - right to opt in

Within one month, the employer must provide non-eligible jobholders with certain information. This must include a statement that they can require the employer to enrol them into an automatic enrolment scheme by completing an opt-in notice. Where a non-eligible employee opts in, the employer must deduct/make contributions as long as they remain in the scheme.

Entitled worker - right to join

Within one month, the employer must provide entitled workers with certain information. This must include a statement that they can require the employer to enrol them into a pension scheme by completing a joining notice. The pension scheme doesn't have to be an automatic enrolment scheme and the employer is under no obligation to make contributions. However the employer must deduct the entitled worker's contributions from their salary and pay these to the pension scheme on their behalf.

Automatic re-enrolment

Employers must re-assess their workforce on the employer's re-enrolment date. The re-enrolment date will generally be every three years from the employer's staging date. The employer may adjust the re-enrolment date by up to three months before or after the three year anniversary of the staging date if required - for example to coincide with their payroll or accounting year end date.

Opting out

Eligible and non-eligible jobholders may opt out by completing an opt-out form. They must get the opt-out form from the pension scheme or pension scheme provider. They have one month to opt out from the later of the date they received the enrolment information or the terms and conditions/scheme details. Once completed, an opt-out form must be returned to the employer. Once the employer receives the opt-out form, they must:

check that the form is valid. If the opt-out form is not valid, the employer must inform the jobholder and ask them to resubmit the form.
stop deducting contributions from the jobholder's salary
refund any contributions that have already been taken from the jobholder's salary.

Employers are under no obligation to continue making contributions if an eligible jobholder or non-eligible jobholder opts out. Any worker (including entitled workers) in a pension scheme can decide to stop saving into the pension at any time. They will not need to complete an opt-out form outside the opt out period of one month. They will not receive a refund of any contributions they have made if the automatic enrolment scheme is a group or individual personal/stakeholder pension.

Automatic enrolment schemes explained

Employers must register with TPR that they have an automatic enrolment scheme in place within four months of their staging date then re-register every three years. An automatic enrolment scheme must satisfy certain requirements including the �quality requirements'. For defined contribution schemes, the quality requirement is primarily based on minimum contribution level (defined benefit and hybrid schemes must satisfy separate requirements that are not covered here). The minimum contribution levels will be phased in over five years from the start of the employer duties in October 2012. Employers may pay the whole of the total minimum or just their part then require jobholders to make up the difference to the total minimum. Employers may use one of the options below or a combination of them to meet the minimum contribution level.

1. Qualifying earnings

Minimum contributions will be based on an earnings band of more than £5,035 and £33,540 or less2, called qualifying earnings.
Qualifying earnings includes salary, wages, overtime, bonuses, commissions, statutory sick pay, statutory maternity pay, ordinary/additional statutory paternity pay and statutory adoption pay.
Employers must check that their minimum contributions are made, any difference is deducted from employees, and the total is paid to the pension provider each time a contribution is due.

Minimum Automatic Enrolment scheme contribution rates as a percentage of qualifying earnings
Date	Minimum employer	Minimum difference to be made up by member (gross)	Total minimum
Oct 2012 to Sept 2016	1%	1%	2%
Oct 2016 to Sept 2017	2%	3%	5%
Oct 2017 onwards	3%	5%	8%

2. Certification

As an alternative to using the qualifying earnings definition, employers may choose to certify that their scheme meets the minimum requirements. Minimum contributions will be based on the employer's definition of �pensionable salary'. Pensionable salary must be at least basic contractual salary and need not include variable salary such as bonuses, overtime and commission. Contributions must be based on the first pound of pensionable salary. Employers may certify in advance that their scheme will meet the quality requirement for up to twelve months. Employers may designate the calculations to an authorised person (e.g. adviser, accountant) but remain responsible for the certification itself.