Updating author: Kate Upcraft
- Employers must enrol eligible employees into a qualifying pension scheme. (See Pensions auto-enrolment - overview)
- Whether or not an employee qualifies for auto-enrolment depends on his or her age and earnings. (See Pensions auto-enrolment: who must be auto-enrolled?)
- To be a qualifying pension scheme for auto-enrolment purposes, schemes must meet minimum requirements. (See Pensions auto-enrolment: defined-contribution qualifying schemes and Pensions auto-enrolment: defined-benefit qualifying schemes)
- Employers must make minimum contributions into a pension scheme. (See Pensions auto-enrolment: contribution levels)
- Certain employee safeguards apply in relation to pensions auto-enrolment. (See Pensions auto-enrolment and employee safeguards)
- Employers must provide staff with information about their rights in relation to auto-enrolment. (See Pensions auto-enrolment and information requirements)
Pensions auto-enrolment review: On 18 December 2017, the Government published Automatic enrolment review 2017: Maintaining the momentum. The Government proposes to:
- lower the age criterion for pensions auto-enrolment from 22 to 18:
- change the framework for automatic enrolment so that pension contributions are based on all earnings, rather than from the lower limit of the qualifying earnings band (£6,136 for 2019/20), and the entitled worker category no longer applies; and
- review contribution levels following the increase to a total of 8% from 6 April 2019.
The Government intends to implement these reforms to pensions auto-enrolment in the mid-2020s, following consultation.
Pensions auto-enrolment - overview
Employers are required to provide eligible workers with a qualifying pension scheme, automatically enrol them into such a scheme and make minimum levels of contributions. There are two types of workplace pension scheme, namely: occupational schemes operating on either a final salary (defined-benefit) or money purchase (defined-contribution) basis and set up under trust law by single employers, groups of employers or insurance companies; and contract-based personal pension schemes offered by financial institutions, which are always money purchase schemes (see Pensions > Workplace pensions > Types of workplace pension scheme).
Pensions auto-enrolment was phased in from 1 October 2012 to 1 February 2018 (see Pensions auto-enrolment staging dates and duties start dates).
There are minimum quality standards that schemes must reach if they are to be used by employers to auto-enrol jobholders (see Pensions auto-enrolment: defined-contribution qualifying schemes and Pensions auto-enrolment: defined-benefit qualifying schemes).
Primary legislation relating to auto-enrolment is in the Pensions Act 2008 and the Pensions Act 2011. Secondary legislation to support auto-enrolment includes the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (SI 2010/772) (as amended by the Automatic Enrolment (Miscellaneous Amendments) Regulations 2012 (SI 2012/215), the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012 (SI 2012/1257) and the Automatic Enrolment (Miscellaneous Amendments) Regulations 2013 (SI 2013/2556)). These Regulations set out the practical arrangements that employers must make to enrol eligible jobholders automatically into a qualifying pension scheme and the arrangements that an individual must make if he or she wishes to opt out of pensions saving.
Requirements around compliance, record-keeping and making a declaration of compliance with the Pensions Regulator are set out in the Employers' Duties (Registration and Compliance) Regulations 2010 (SI 2010/5) as amended by the Automatic Enrolment (Miscellaneous Amendments) Regulations 2012 (SI 2012/215).
Pensions auto-enrolment guidance
The Pensions Regulator has also published guidance on choosing a pension scheme.
Pensions auto-enrolment staging dates and duties start dates
Employers in existence prior to 1 October 2017 were allocated a date, known as their "staging date", by the Pensions Regulator, from which they had to auto-enrol eligible jobholders into a qualifying pension scheme. The first staging date was 1 October 2012 and the final staging date was 1 February 2018. Groups of employers (by PAYE scheme size and its reference number) went live (ie staged) each month. Employers could choose to auto-enrol ahead of their staging date but had to notify the Pensions Regulator, in writing, of this intention on or before the new chosen staging date (see the Pensions Regulator website for more details). A staging date profile is included in the Employers' Duties (Implementation) (Amendment) Regulations 2012 (SI 2012/1813).
For new employers from 1 October 2017, the "duties start date" (rather than "staging date") is the date on which their first worker is employed (Employers' Duties (Implementation) (Amendment) Regulations 2017(SI 2017/347)).
Staging dates and duties start dates remain relevant in relation to Pensions auto re-enrolment.
Pensions auto-enrolment and postponement
Employers can postpone the assessment of eligible jobholders for auto-enrolment to avoid having to auto-enrol employees with short contracts or an unusual spike in earnings, or to avoid pro-rating contributions where an automatic enrolment date falls mid-pay period. Postponement is sometimes referred to as "deferral". There are different types of postponement that can be applied:
- to all existing workers on the employer's staging date or duties start date;
- to all newly eligible jobholders on starting employment; and
- when an individual becomes an eligible jobholder due to a change in age or earnings.
The maximum postponement period is three months after the starting day (ie the initial staging date or duties start date, or eligibility date, as applicable).
Employers must provide a postponement notice to affected individuals within six weeks, beginning with the day after their assessment date (ie the date on which an employer assesses an individual's circumstances to establish which of the employer duties apply to him or her). See the Pensions Regulator's guidance on Information to workers for more details.
Employees can ask to opt in voluntarily during this period and this overrides the postponement. Provided that an employee is ineligible for auto-enrolment on the last day of the postponement period, another three-month period can be invoked next time the employee becomes eligible. This can occur an unlimited number of times even if this means that the employee will never be automatically enrolled. Postponement is not to be confused with allowing employees to opt out ahead of auto-enrolment, which is not permitted (hence opting-out during postponement is not permitted). Under the auto-enrolment legislation, employees can opt out of pension membership within one month only of being auto-enrolled even if this takes place after postponement. However, some pension schemes allow for longer opt-out periods.
Postponement is not permitted on re-enrolment (see below).
See the Pensions Regulator's guidance on Postponement for more details.
Additional resources on pensions auto-enrolment and postponement
Pensions auto-enrolment: contribution levels
In relation to defined-contribution schemes, employers are, from 6 April 2019, required to make guaranteed contributions of at least 3% with an additional 1% effectively given through tax relief on the 5% employee contribution for basic rate taxpayers. Contributions from the employer and employee must total 8% of the employee's total earnings. (Taxpayers whose marginal rate of tax is higher than the 20% basic rate are entitled to additional tax relief up to their marginal rate, subject to their annual allowance (see Pensions > Workplace pensions > Pensions glossary > Annual allowance).) As a minimum, contributions must be paid on a set definition of earnings between the lower and upper limits of the qualifying earnings band (see Pensions auto-enrolment: earnings thresholds, qualifying earnings and certification), although some schemes will have rules that operate no earnings bands, different definitions of earnings and contribution rates to the statutory minimum and this can be permitted.
Total minimum contributions required have increased over a transitional period. The contribution levels and the transitional periods (as defined in the Employers' Duties (Implementation) Regulations 2010 (SI 2010/4)), as amended, are set out below:
|Period||Total required contributions (% of earnings)|
|1 October 2012 to 5 April 2018||2, of which the employer contribution was 1|
|6 April 2018 to 5 April 2019||5, of which the employer contribution was 2|
|6 April 2019 onwards||8, of which the employer contribution is 3|
The figure is quoted as a total required contribution rather than an employee contribution to allow for flexibility for employers as to how the breakdown between employee and employer contributions is made up (subject to the minimum employer contribution), particularly where pension salary sacrifice (also referred to as "optional remuneration arrangements" from April 2017) is in place. The total figure includes tax relief on the employee's contribution. While minimum rates are set, there are no maximum rates set by legislation. Therefore, schemes may set these at whatever they consider appropriate.
The transitional periods set out above differ from those originally determined. The Employers' Duties (Implementation) (Amendment) Regulations 2016 (SI 2016/719), which came into force on 1 October 2016, aligned increases in minimum contribution levels for pensions auto-enrolment with tax years. Prior to this, the increases on 6 April 2018 and 2019 were due to take place on 1 October 2017 and 2018 respectively. It is possible that the change to the timetable for increases in contributions may have triggered a requirement to consult about pension scheme changes for some employers (see Information and consultation > Informing and consulting on pension scheme changes). Where pension scheme rules required contribution increases to take effect on the earlier dates of 1 October 2017 and 2018, this took precedence over the later 6 April 2018 and 2019 dates for increases, provided for in the Regulations.
See also the Pensions Regulator's guidance: Increases in minimum contributions for automatic enrolment pensions.
Where the National Employment Savings Trust (Nest), certain other master trusts or a contract-based pension scheme are chosen as the auto-enrolment scheme, tax relief is given at source, ie the scheme applies to HM Revenue and Customs for the tax relief and this is added to the individual's pension fund. (Taxpayers whose marginal rate of tax exceeds the 20% basic rate apply for their additional tax relief through their self-assessment return or by contacting HM Revenue and Customs.) The Registered Pension Schemes (Relief at Source) Regulations 2005 (SI 2005/3448) specify the conditions that must be satisfied for relief at source to apply. See Pension administrators: reclaim tax relief using relief at source for more details of the requirements. For arrangements in Scotland from 6 April 2019, see Relief at source pension schemes newsletter - January 2019.
The income tax personal allowance for 2019/20 is £12,500 (see Pay As You Earn > The PAYE system). Employees in net pay arrangement pension schemes, where tax relief is given through the payroll (rather than by the provider, as in relief at source schemes), do not receive tax relief on pension contributions if their earnings are below £12,500, whereas in a relief at source scheme (see above) all members receive 20% tax relief. The earnings threshold for automatic enrolment is £10,000 for 2019/20 (see Pensions auto-enrolment: earnings thresholds, qualifying earnings and certification). This means that individuals who are auto-enrolled into a net pay arrangement pension scheme because they satisfy the earnings threshold but who earn less than £12,500, will be caught by the absence of tax relief in net pay arrangements.
While the Nest is an occupational scheme, tax relief is not given through the payroll under the net pay arrangement as is the case for some other occupational schemes, to facilitate the self-employed receiving tax relief when opting to save with the Nest. Employers using other master trusts should ensure that they know how tax relief is operated by the scheme so that this is correctly reflected in their payroll software and they are aware of the impact on low earners (see Pensions > Workplace pensions > Tax and pension contributions).
See also the joint statement from HMRC and the Pensions Regulator concerning incorrect tax relief, in HMRC Pension schemes newsletter 105.
From tax year 2017/18 onwards, there is no annual limit on contributions into the Nest. Prior to 2017/18, there was an annual contribution limit (£4,900 for 2016/17), which was index-linked to earnings year on year from 2012. From 1 April 2017, the Nest can accept transfers-in without charge. Prior to 1 April 2017, no transfers were permitted between the Nest and current registered pension schemes.
From 6 April 2018, the Nest is able to carry out contractual enrolment (as well as automatic enrolment) and close members' accounts where they have zero contributions. Individuals are able to join Nest via bulk transfer. These changes were effected by the National Employment Savings Trust (Amendment) Order 2018 (SI 2018/368). The Nest continues not to be able to offer annuities when scheme members reach pension age. Therefore, members continue to have the option to: withdraw all their funds as a lump sum or take several small lump sums; transfer funds to another pension scheme; or buy an annuity on the open market.
The Pensions Regulator has published a revised Code of practice 05 and Code of practice 06, which came into effect from September 2013, in relation to timely payments into defined-contribution schemes for occupational and personal pensions respectively. See also the Pensions Regulator's Quick guide to paying contributions to personal pension schemes and defined-contribution occupational pension schemes.
Pensions auto-enrolment: defined-contribution qualifying schemes
To be considered a qualifying workplace pension scheme and therefore suitable for auto-enrolment, defined-contribution schemes must:
- be registered in the UK (or if in the EEA be regulated);
- be able to auto-enrol eligible jobholders who have qualifying earnings in the relevant pay reference period (ie the period broadly relating to the frequency of payment, for example four-weekly, monthly or weekly) above the earnings trigger (see Pensions auto-enrolment: earnings thresholds, qualifying earnings and certification);
- be able to re-enrol eligible jobholders who have opted out or reduced total contributions to below the statutory minimum, every three years, within a three-month window either side of every third anniversary of the employer's initial staging date or duties start date;
- be able to offset the national insurance contributions lower earnings limit below which pension contributions are not required, and cap earnings at the upper earnings limit, unless, with no offsetting or capping but with a narrower definition of pensionable pay than that in the Pensions Act 2008, the employee receives at least the same benefits as if the earnings threshold and earnings cap and the broader definition of pensionable pay (ie qualifying earnings) had been used (known as "certification");
- not deduct consultancy charges from member contributions (see Consultancy charges and member contributions);
- have a charge cap of no more than 0.75% on default funds used for auto-enrolment (see Financial Conduct Authority (FCA) Final rules for charges in workplace personal pension schemes and the Government's non-statutory guidance, The charge cap: guidance for trustees and managers of occupational schemes); and
- from 6 April 2016, not operate active member discounts (whereby deferred members pay higher charges to offset discounts to current scheme members, although employers can pay or subsidise charges for current employees).
Employers are not legally liable for the scheme that they choose to offer to employees provided that it meets the qualifying criteria. However, as a pension scheme that is classed as a qualifying scheme cannot require a member to make a choice on the fund in which his or her contributions will be invested, a default fund must be offered. Therefore, default funds will need to be more closely regulated as they will be a required feature of all defined-contribution schemes. To this end, the Government has published comprehensive Guidance for offering a default option for defined-contribution automatic enrolment pension schemes.
The Pensions Regulator has published: Code of practice: Governance and administration of occupational trust-based schemes providing money-purchase benefits. The code includes regulatory guidance on how to deliver the quality features that the Regulator expects to see in trust-based defined-contribution schemes. It also published its updated Compliance and enforcement policy for occupational pension schemes providing money-purchase benefits in July 2016. The Occupational Pension Schemes (Charges and Governance) Regulations 2015 (2015/879) came into force on 6 April 2015, alongside FCA Final rules for independent governance committees for contract-based pensions. Independent governance committees should mirror the role of trustees in relation to occupational scheme governance (although the duties of trustees are expanded, in particular in relation to charges and the value for money of occupational schemes).
Master trusts must also have a number of trustees who are independent of their commercial provider but they need not be scheme members (as is the requirement for single employer trust-based schemes).
As some small employers may be unable to secure a contract-based scheme from commercial providers, the Government set up the National Employment Savings Trust (Nest), a trust-based, multi-employer occupational pension scheme, established by order of the Secretary of State and run by a trustee corporation that is legally obliged to handle the scheme's assets in the best interests of members and cannot refuse membership to any employer. The Nest is a master trust. The Nest offers e-channels for communication as well as traditional paper-based routes, to contain costs. On 24 November 2010, the Nest announced (on its website) that the charge to be levied on members, to recoup the cost of the scheme, will be 1.8% and the annual management charge will be 0.3%.
A board of trustees takes ultimate responsibility for setting the strategic direction for the scheme, from the collection of contributions to the investment of assets and payment of benefits. An employer and member advisory panel supplements the trustees to ensure that they take members' and contributing employers' views into account. The trustees decide on the choice of funds, the strategy for the investment of the default fund, and the appointment and management of external fund managers. A Sharia-compliant fund enables Muslim employees to participate in the scheme.
Where an employer has used a master trust as its provider, but the trust ceases to operate (potentially as a consequence of the requirement from 1 October 2018 for master trusts to apply to the Pensions Regulator for authorisation), the employer must find a new qualifying pension scheme with immediate effect.
The Pensions Regulator has produced guidance on selecting a pension scheme for automatic enrolment. See also detailed guidance (no.4) on pension schemes, and Master trust pension schemes for more information about master trusts.
Consultancy charges and member contributions
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2013 (SI 2013/2328) prohibit occupational and personal pension defined-contribution qualifying automatic enrolment schemes from passing on charges to members for advice that the scheme has received from a third-party pensions adviser unless the employer entered into a legally binding agreement with the third party prior to 10 May 2013.
Pensions auto-enrolment: earnings thresholds, qualifying earnings and certification
The Pensions Act 2008 (ss.3(1)(c), 5(1)(c) and 13(1)), as amended by the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Orders (SI 2014/623 and SI 2019/374), sets the automatic enrolment threshold and limits for tax year 2019/20. The Act sets:
- the automatic enrolment earnings trigger at £10,000;
- the lower limit of the qualifying earnings band at £6,136; and
- the upper limit of the qualifying earnings band at £50,000.
See also the Pensions Regulator's Automatic enrolment earnings threshold tables.
The Government must review these thresholds each year.
The definition of qualifying earnings in the Pensions Act 2008, used to establish if the earnings trigger has been reached, requires that specific pay elements be included rather than just basic pay, which is the norm for many pension schemes. The pay elements on which earnings must be assessed for this purpose are: salary, wages, commission, bonus, overtime, statutory sick pay, statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory shared parental pay. Employers must assess if pay elements fall within the definition of "wages or salary".
Qualifying earnings that are used to determine if an employee must be auto-enrolled should not be confused with the employer's definition of pensionable pay for contribution purposes. The scheme may use its own definitions of pensionable pay, contribution levels and earnings bands to which contribution levels are applied provided that the resulting pension provision matches or exceeds what it would under the auto-enrolment provisions. Section 32 of the Pensions Act 2008 details the rule changes that can be made by resolution of the trustees for a scheme to be certified as qualifying. These are changes in contribution rates and the basis on which they are calculated and the frequency of contributions.
To assess if a scheme using a non-statutory definition of pensionable pay (for example basic pay only) will achieve the required level of contributions (which is known as "certification") employers should use (or should have used for periods up to 6 April 2019) as a matrix:
|Period||Contributions calculated on basic pay||Pensionable pay constitutes at least 85% of total pay bill||Total pay bill is pensionable|
|Up to 5 April 2018||3% of pensionable pay (of which 2% was an employer contribution)||2% of pensionable pay (of which 1% was an employer contribution)||2% of pensionable pay (of which 1% was an employer contribution)|
|6 April 2018 to 5 April 2019||6% of pensionable pay (of which 3% was an employer contribution)||5% of pensionable pay (of which 2% was an employer contribution)||5% of pensionable pay (of which 2% was an employer contribution)|
|6 April 2019 onwards||9% of pensionable pay (of which 4% is an employer contribution)||8% contribution of pensionable pay (of which 3% is an employer contribution)||7% contribution of pensionable pay (of which 3% is an employer contribution)|
To assess if a scheme meets the requirements for certification, employers need to assess contributions against annual earnings even if the employee is weekly or monthly paid. Therefore, an annual reconciliation needs to be carried out.
The Department for Work and Pensions has published technical guidance on using certification for defined-contribution schemes, including where it is not necessary for a scheme as it meets the government quality criteria. See also the Pensions Regulator's guidance on Pension schemes for more details. The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2012 (SI 2012/1257) provide the legislative framework for certification.
Where an employer's existing workplace pension scheme has not met the certified standard for a certification period (up to 18 months) it will have to amend it going forward or offer access to another qualifying scheme or the Nest. Retrospective contributions to correct shortfalls will not be required, unless the Pensions Regulator is of the view that the employer knew when it certified the scheme as compliant that total contributions would not be adequate. In this case it can require a shortfall to be made up retrospectively.
Pensions auto-enrolment: defined-benefit qualifying schemes
For a defined-benefit scheme to be considered a qualifying workplace pension, the scheme must be registered in the UK (or, if in the EEA, be regulated).
The scheme must also be one that:
- meets the "test scheme standard", ie it offers at least one-120th of qualifying earnings over the last three tax years for a maximum of 40 years' service, with a retirement age of 65 rising to 68 by 2046; or
- satisfies the "alternative quality standard test".
The "alternative quality standard test" was introduced with effect from 1 April 2015 by provisions in the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015 (SI 2015/501). The Regulations provide that the alternative quality standard test is met in relation to schemes that meet one or both of the following requirements, namely that they:
- are classified as defined-benefit but follow a defined-contribution scheme structure, in terms of contributions being calculated as a percentage of members' earnings of at least a suggested 10% of total relevant earnings (9% for schemes that do not provide spousal benefits); and/or
- follow a tiered structure to fund future accruals similar to the defined-contribution tiers (the "cost of accruals test").
A scheme will satisfy the "cost of accruals test" if:
- pensionable pay equates to at least basic pay and where contributions are at least 11%;
- pensionable pay is basic pay and forms 85% of the total salary bill for the members or is based on qualifying earnings (as defined in the Pensions Act 2008) and where contributions are at least 10%;
- all pay is pensionable and contributions are at least 9%; or
- for earnings above the basic state pension or the lower earnings limit, contributions are at least 13% (where the scheme offsets the basic state pension or lower earnings limit before calculation of contributions).
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015 also set out in relation to the alternative quality standard test:
- the relevant members to whom the test applies;
- the period over which the test will be measured;
- how satisfaction of the test will be calculated; and
- whether or not the scheme actuary may need to certify that the test is met.
Prior to 6 April 2016, defined-benefit schemes could rely on the fact that they were contracted out to qualify for auto-enrolment purposes. With the introduction of the single-tier state pension (see Pensions > State pension > Single-tier pension), contracting out has been abolished. The alternative quality standard test (see above) was introduced to enable contracted-out defined-benefit schemes to continue to qualify for auto-enrolment, without having to meet the test scheme standard. The Government has published Guidance on the alternative quality requirement.
For defined-benefit schemes that were contracted out on 5 April 2016, whose benefits have not changed and that have a complex benefit structure with different accrual rates for different groups, the Government has introduced an easement to allow them to apply the cost of accruals test at scheme level as an alternative. It will apply for a transitional period only to the earlier of the first actuarial report on or after 6 April 2016 to 5 April 2019. The Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016 (SI 2016/311) amended s.32M of the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (SI 2010/772) to effect this. The easement is also available to schemes that amend their rules after 6 April 2016 but that would still have been able to contract out if this was still an option.
Schemes that rely on the alternative cost of accruals test from 6 April 2016 (ie schemes that were contracted out prior to 6 April 2016 and that are relying on the easement to apply the cost of accruals test at scheme level (see above)) were unable to take advantage of the transitional provisions that delayed auto-enrolment until 1 October 2017. This limitation was retrospective to 19 December 2012.
The Government has published Guidance for employers on certifying defined benefits and hybrid pension schemes and Guidance for actuaries on certifying defined benefits and hybrid pension schemes. See also the Pensions Regulator's Guidance on pensions schemes (no.4).
In relation to hybrid schemes, the Hybrid pension schemes quality requirements rules 2016 apply from 6 April 2016 and set out the detailed quality requirements that schemes need to satisfy before they can be used as a qualifying scheme for auto-enrolment purposes.
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No.3) Regulations 2012 (SI 2012/2691), which came into force on 1 November 2012, give career average schemes (a type of defined-benefit pension arrangement) flexibility over the way in which they can provide for the revaluation of benefits so that they can be used as qualifying schemes.
The Pensions Regulator's Code of practice on funding defined benefits came into force on 29 July 2014. The Pensions Regulator has published guidance on Assessing and monitoring the employer covenant, to help trustees of defined-benefit schemes apply the code of practice.
Pensions auto-enrolment: who must be auto-enrolled?
Employers must, within six weeks of their auto-enrolment date (ie the date on which jobholders become eligible), auto-enrol all eligible jobholders from that auto-enrolment date (subject to a maximum three-month postponement period), and begin deductions from the first time they are paid after that date (backdated to the auto-enrolment date). Eligible jobholders are those who:
- are aged between 22 and state pension age;
- have qualifying earnings of more than £10,000 (for 2019/20); and
- are contracted to work or ordinarily work in the UK.
There is a requirement to carry out an assessment of workers who have not qualified for auto-enrolment, on an ongoing basis at each payroll run, in case a duty to auto-enrol arises in respect of a worker, due to a change in age and/or earnings (ie the worker becomes an eligible jobholder).
- are already in a qualifying pension scheme and are eligible jobholders based on age and earnings at the date on which the employer's duties begin, or at any time during their scheme membership from that duties date, but who choose to cease membership post that date; and
- are auto-enrolled and opt out post the date on which duties start; and
- had been members of a qualifying pension scheme during the period up to 12 months prior to assessment
do not need to be reassessed for auto-enrolment until the employer's re-enrolment date (which is three years from the original staging date or duties start date). Employers can set a re-enrolment date three months either side of this three-year anniversary to fit in with their business needs.
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015 (SI 2015/501) effect exemptions from auto-enrolment in relation to individuals who have:
- tax-protected status for existing pension savings (although affected individuals will have to provide evidence of their status, to their employer, in order not to be auto-enrolled);
- resigned or who are under notice of dismissal within the six-week auto-enrolment window (other than fixed-term workers with an agreed leaving date (for whom postponement can be used to avoid auto-enrolment if age and earnings trigger eligibility));
- given notice of retirement within the six-week auto-enrolment window; or
- cancelled pension membership after being contractually enrolled into a qualifying scheme within 12 months of staging or the duties start date, or re-enrolment.
Individuals who have been a member of a qualifying pension scheme during the period up to 12 months prior to assessment but who have ceased membership, can be assessed at the re-enrolment date rather than at each pay period.
From 6 April 2016, the definition of eligible jobholder was amended (by the Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016 (SI 2016/311)) to allow the following groups to be excluded from automatic enrolment, namely:
- directors and limited liability partnership equity partners (although they can opt-in as non-eligible jobholders or entitled workers); and
- individuals who have received a winding-up lump sum and who have then left and been re-employed within 12 months.
The definition of jobholders includes agency workers, personal service workers, directors (other than those where the owner is a single employee), and workers from abroad who are contracted to work in the UK (for example, exchange students being paid in the UK). The obligation to auto-enrol agency workers falls on the party that pays them. The Pensions Regulator's detailed guidance (no.1) contains guidance on defining the workforce for auto-enrolment purposes. Employers should not assume that an individual who is classified as self-employed for tax and national insurance purposes falls to be excluded from auto-enrolment.
A jobholder cannot opt out of the scheme pre-enrolment (for example, during a postponement or transitional period).
Additional resources on pensions auto-enrolment: who must be auto-enrolled?
- Do employers need to obtain employees' consent for them to join a qualifying auto-enrolment pension scheme?
- What is the position if eligible jobholders do not want to join an auto-enrolment pension scheme?
- How should employers deal with pension entitlement for new recruits under the pensions auto-enrolment provisions?
Pensions auto re-enrolment
Employers must automatically re-enrol eligible jobholders who are not scheme members (or whose total contributions into the qualifying pension scheme are below minimum auto-enrolment requirements (see Pensions auto-enrolment: contribution levels)) within a six-month window of three months before and three months after the third anniversary of their initial staging date or duties start date (rather than the third anniversary of a later postponement date). This is known as the "cyclical auto re-enrolment date" (CARD). Where an employer has already re-enrolled eligible jobholders, calculation of the six-month window for subsequent re-enrolment is based on the previous re-enrolment date.
Employers should be aware that, in the pay reference period chosen for re-enrolment, postponement cannot be used for workers who meet eligible jobholder requirements. This means that part-period contributions may need to be calculated. Employers should check that the pension provider and the scheme rules allow for this or whether or not an alternative CARD would alleviate the need to pro-rate.
A worker must be re-enrolled if he or she has:
- been assessed as an eligible jobholder on the re-enrolment date; and
- been an eligible jobholder since staging or the duties start date but is no longer an active member (including where he or she continued in active membership, but the scheme is no longer a qualifying scheme in relation to him or her because, for example, the worker's chosen level of pension contributions are below the statutory minimum (known as "opting-down")); and
- opted-out or ceased membership of a qualifying scheme with the same employer more than 12 months prior to the re-enrolment date.
It is not necessary to carry out an assessment of non-eligible jobholders or entitled workers at the re-enrolment date. (Although employers must still meet the ongoing requirement to carry out an assessment of workers who have not qualified for auto-enrolment, at each payroll run, in case a duty to auto-enrol arises in respect of a worker, due to a change in age and/or earnings.)
Pensions auto-enrolment and voluntary opt-ins
Non-eligible jobholders (ie those whom the employer is not required to auto-enrol) can ask to be enrolled voluntarily if they are:
- aged 16 to 21 or state pension age to 74 with earnings over £10,000 (for 2019/20); or
- aged 16 to 74 with earnings at or below £10,000 but above the national insurance contribution (NIC) lower earnings limit (£6,136 for 2019/20).
Workers who are subject to a postponement period can also ask to be enrolled and this overrides the postponement.
Where a jobholder who is non-eligible on age and/or earnings grounds asks to enrol, he or she is treated as if he or she is an eligible jobholder. All the rights and employer duties that apply in relation to eligible jobholders will also apply, including the ability of the jobholder to opt out while the employer is in the process of completing active membership after he or she has requested to opt-in voluntarily. This could happen where a jobholder's financial circumstances change and scheme membership is no longer viable. Non-eligible jobholders can ask to opt-in at any time but, at the point of voluntary opt-in, the employer must re-establish if they are still non-eligible jobholders or entitled workers as this dictates the scheme type that must be offered. However, if a worker has opted-in within the previous 12 months and opted out, the employer can refuse to action another opt-in until 12 months have elapsed since the latest opt-in request.
Where a worker (under s.88 of the Pensions Act 2008 and as opposed to a jobholder) who is aged 16 to 74 and has earnings at or below the NIC lower earnings limit (referred to as an "entitled worker") wishes to enrol voluntarily, the employer does not have to provide access to a qualifying scheme or to make employer contributions. The employer needs only to provide access to a scheme that is registered with HMRC and provides tax relief. Therefore, a pre-existing stakeholder scheme, for example, could be sufficient for this purpose. However, if an employer chooses to offer a worker access to a qualifying scheme then, by definition, this will carry with it mandatory employer contributions.
Employers must notify non-eligible jobholders and entitled workers of their rights in relation to voluntary enrolment or scheme access within six weeks of their assessment date (see the Pensions Regulator's guidance on Information to workers for more details).
Pensions auto-enrolment and handling opt-outs
Eligible and non-eligible jobholders who ask to opt out within one month of enrolment must be given a refund of all their contributions (as must the employer) no later than the last day of the second pay period after the opt-out notice is given. Jobholders who opt out of contractual auto-enrolment (eg where a scheme uses salary sacrifice) may receive a refund only if their scheme rules allow this (see the Pensions Regulator's detailed guidance (no.6) for more information). Some schemes allow individuals to opt out (and receive a refund) within a period that exceeds the statutory one-month minimum. Jobholders who opt out after this time may not be entitled to a refund (depending on the rules of the scheme), only to a cessation of future deductions. Workers who opt out are not entitled to a refund although scheme rules may permit refunds to be made.
Additional resources on pensions auto-enrolment and handling opt-outs
Pensions auto-enrolment and declaration of compliance with the Pensions Regulator
Within five months of its staging date or duties start date and five months (two months prior to 6 April 2016) of its re-enrolment date the employer must declare its compliance with the Pensions Regulator.
The declaration of compliance can be completed online (on the Pensions Regulator website), by telephone or on paper. There is a checklist of the information that employers need to complete their declaration.
Pensions auto-enrolment and employee safeguards
Employers have an ongoing duty to maintain active membership of a qualifying scheme for eligible jobholders. Therefore, they may not:
- take steps to make a scheme non-qualifying, for example by reducing total contributions to below the required minimum (see Pensions auto-enrolment: contribution levels) or reducing the definition of pensionable pay as above; or
- remove jobholders from a qualifying scheme without auto-enrolling them into another qualifying scheme with no more than a one-month gap.
Employers are prohibited (by s.54 of the Pensions Act 2008) from offering inducements, such as higher salaries, one-off bonuses or certain benefits where the sole or main purpose is to encourage workers to opt out of a workplace pension scheme (without becoming an active member of another scheme) and from operating practices referred to as "prohibited recruitment conduct" (s.50 of the Pensions Act 2008). Recruiting employers are prohibited from asking questions or making statements during the course of the recruitment process that indicate that the recruitment of an applicant is dependent on whether or not he or she may opt out of membership of a workplace pension.
Offending employers may be subject to a fine for each offence under ss.50 and 54 of the Pensions Act 2008, which may not be met from the funds of the pension scheme. Under s.52(3) of the Act, the fine cannot exceed £50,000. Where employers flout the rules against inducements, the Pensions Regulator has the power to require employers to revert workers back to the position in which they would have been had they not been induced out of the scheme, by paying any arrears of contributions due.
Workers are also protected against detrimental treatment for asserting the right to auto-enrol (under s.55 of the Pensions Act 2008). Only employees are protected against dismissal for asserting this right (under s.104D of the Employment Rights Act 1996).
Further information is the Pensions Regulator's detailed guidance (no.8).
Additional resources on pensions auto-enrolment and employee safeguards
- What is prohibited recruitment conduct under the pensions auto-enrolment provisions?
- What is an unlawful inducement under the pensions auto-enrolment provisions?
- How are employees protected from detrimental treatment or dismissal in relation to pensions auto-enrolment?
- What are the potential consequences if an employer breaches the employee protection provisions in relation to pensions auto-enrolment?
Pensions auto-enrolment and information requirements
Employers must provide jobholders and workers with information about their rights in relation to auto-enrolment. This information must be provided in writing, which can include information sent by email, but will not include merely putting information on a company intranet or noticeboard. Employers must provide information to jobholders and workers about their opting-in and joining rights within six weeks of their staging date, duties start date or assessment date as applicable. See the Pensions Regulator's guidance on Information to workers for more details.
Additional resources on pensions auto-enrolment and information requirements
Pensions auto-enrolment and record keeping
Employers must keep records of:
- the qualifying scheme being used;
- each jobholder and each worker who is an active member, including age, earnings and contribution records for each pay period; and
- each opt-out, opt-in, joining and re-enrolment notice.
Existing payroll records may suffice to cover some of these obligations. Records must be held for six years (relating to the date of each document, not by tax year) although opt-out notices need to be kept for only four years. The Pensions Regulator has published detailed guidance (no.9) on the record-keeping requirements.
Contractual pensions enrolment
Where a scheme uses salary sacrifice or another contractual mechanism to enrol all employees rather than just eligible jobholders (also known as "contractual enrolment"), the range of employer duties and information to be provided to employees depends on whether or not the pension scheme in use is a qualifying scheme (see the Pensions Regulator's detailed guidance (no.6) for more information).
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015 (SI 2015/501) provide for employees who have been contractually enrolled and then cease membership up to 12 months prior to assessment as an eligible jobholder to not need to be auto-enrolled at that time. Instead they can be excluded from assessment until the employer's next re-enrolment date.
HM Revenue and Customs (HMRC) has published guidance on Salary sacrifice arrangements (also known as "optional remuneration arrangements") and pensions auto-enrolment.
Pensions auto-enrolment and TUPE transfers
Where employees transfer to another employer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), they are treated as new recruits for the purposes of auto enrolment. The duty to auto-enrol transferring eligible jobholders will apply at the date of the transfer, subject to the six-week auto-enrolment window and three-month postponement period (see Pensions auto-enrolment and postponement). Any opt-outs with the transferor are ignored and the transferee must auto-enrol eligible employees, although the employees can opt out again within the transferee's opt-out window.
However, the Transfer of Employment (Pension Protection) Regulations 2005 (SI 2005/649) also apply to pension provision in the event of a TUPE transfer. These Regulations require that, if a transferring employee is a member of an occupational pension scheme or is eligible to join such a scheme, the transferee must offer a prescribed level of pension provision after the transfer.
These 2005 Regulations previously required a higher level of contribution than the auto-enrolment minimum. However, under amendments made by the Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2014 (SI 2014/540), transferred employees who are pension scheme members, are entitled only to the same level of employer contribution (for defined-contribution pensions) by the new transferee employer as the level offered by the transferor employer. Alternatively, the transferee can choose to match an employee contribution of up to 6% (see TUPE > Transfer of undertakings > Effect of a relevant transfer on pension arrangements).
Employees who are members of a contract-based pension scheme (see Pensions > Workplace pensions > Types of workplace pension scheme) must benefit from the same level of employer contributions post-transfer as they did prior to the transfer.
See also the Pensions Regulator's detailed guidance (no.2).
Additional resources on pensions auto-enrolment and TUPE transfers
"How to" guidance
Pensions auto-enrolment compliance and enforcement
Employers that wilfully fail to comply with key auto-enrolment or re-enrolment duties or fail to enable non-eligible jobholders to opt in to pension membership may be convicted of a criminal offence and subject to a fine and/or up to two years' imprisonment (s.45 of the Pensions Act 2008).
The Pensions Regulator has set out its Compliance and enforcement: strategy and policy for pensions auto-enrolment, which set out how it will enforce the auto-enrolment regime, using a system of statutory notices, fixed penalties and escalating fines. It also carries out spot checks on employers.
Pensions Act 2008
Pensions Act 2011
Pensions Act 2014
Employers' Duties (Implementation) Regulations 2010 (SI 2010/4)
Employers' Duties (Registration and Compliance) Regulations 2010 (SI 2010/5)
Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 (SI 2010/772)
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014 (SI 2014/623)
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2019 (SI 2019/374)