What is Pension Auto Enrolment and When Did it Start?

All employers in the UK are required to set up a workplace pension for their employees, and as such a workplace pension is a legal requirement. 

Read our article to learn more about pension auto enrolment and when pension auto enrolment started.

Pension auto enrolment is a government initiative that requires all employers to automatically enrol staff into a pension scheme. Usually the staff member makes contributions to the pension scheme as well as the employer. 

Automatic is designed so that employees have easy access to a workplace pension scheme, which will allow them to save for retirement and enjoy an income above the state pension.

If you’re an employee, and you’re yet to be automatically enrolled into a pension scheme, you must talk to your employer as there may be a legitimate reason.

However, if you think that your employer is not complying with their pension duties, you can report them to The Pensions Regulator’s whistleblowing service.

Employees began to be automatically enrolled into pension schemes at the beginning of October 2012, and this process started with larger UK companies.

This allowed any new employees that joined the company to be automatically enrolled into the company’s pension scheme. 

Since 1st February 2018, all companies in the UK should have automatically enrolled all of their eligible employees.

Employers must automatically enrol all staff who are: 

• Aged 22 to pension age 
• Working under the UK under a contract of employment
• Earning over £10,000 a year

Your employees might not be eligible for a pension auto-enrolment scheme, but this may change as they stay at your company. 

For example, their wages might increase or they might celebrate their 22nd birthday, allowing them to automatically enrol into private pension cover. 

There will be some rare exceptions where an employee will reach this threshold but still not be automatically enrolled by their employer. Go to GOV.UK to find out more about any potential exceptions. 

Additionally, auto-enrolment does not apply to the self-employed. However, if you are self-employed, you can still set up a pension scheme for yourself.

In regards to pension schemes, there are three different types of workers. These different types are as follows:

Entitled workers will have the right to join a pension scheme, but they will not be automatically enrolled into a pension scheme.

Enrolment will have to be discussed with the employer and the pension scheme itself. Entitled workers include:

• Workers aged 16-74
• Working in the UK
• Earning below £6,136

As soon as eligible jobholders join a business, they will be enrolled in a pension scheme. Eligible jobholders are: 

• Aged between 22 – state pension age
• Working in the UK
• Earning above £10,000

Non-eligible Jobholders will have a right to opt into the pension scheme, but they will not be automatically enrolled into one. Non-eligible jobholders will fit into some of this criteria:

• Aged between 16 – 21 or state pension age – 74
• Working in the UK
• Earning above £10,000
• Aged 16-74
• Earning above £6,136 but below £10,000

Employers and employees can set higher contribution levels if they so wish, but there are already statutory minimum contribution levels.

This is the minimum basis for calculating pension contributions. The government sets limits for qualifying earnings between £6,240 and £50,270. The minimum auto enrolment is set at 8% of an employee’s qualifying earnings. 

Employers must pay at least 3%, whereas the employee must pay the remaining 5%.

Qualifying earnings include salary, wages, bonuses and commissions, overtime, statutory sick pay and maternity and paternity leave pay.

Basic earnings include basic pay, holiday pay and statutory pay such as sick leave. Basic earnings do not include bonuses, commission, overtime and other similar payments. 

If you use basic earnings to calculate your employee’s pension contributions, the minimum pension contribution is 9%. Employers must pay 4% and employees must pay 5%.

Total earnings refer to all earnings including basic pay, holiday pay, sick pay, bonuses, commission and overtime and any other similar payments. 

If you use total earnings to calculate auto enrolment pension payments, the minimum contribution is 7%. Employers must pay at least 3% and the employee must pay 4%.

Employees can opt out of automatic enrolment, and once you’re automatically enrolled, you’ll have a month to opt out of the scheme.

If you choose to opt out after this month, the contributions to your pension that you’ve already made will remain in the pot. 

If your employee wants to opt out, they must do it as soon as possible. If an employee opts out, but wants to re-join, they may do this but many employers only let employees rejoin once every 12 months. 

However, even if your employee asks not to re-join, they will be automatically readded to the scheme every three years. 

Employers cannot encourage or force you out of the scheme, discriminate or dismiss you for staying in a workplace pension scheme, or imply that someone is more likely to get a job if they opt out of the workplace pension scheme.

There are four important steps to consider when making sure that your pension auto enrolment scheme is kept compliant.

As an employer, you must tell The Pensions Regulator that you’ve met your auto enrolment duties. You need to do this within five months of a new employee’s start date. Employees must do this themselves.

During each pay period, once you’ve run your payroll you must accurately update the payroll details of all your employees to ensure that they are paying the correct amount into their pension. 

You must also automatically collect your pension payments from your employees.

You must inform your employees how automatic enrolment affects them and what they can do if they wish to opt out.

Once you’ve set up your auto enrolment pension scheme, you must ensure that you monitor any employees who aren’t yet eligible for automatic enrolment incase that changes. You should do this each pay period.

If you need help setting up auto enrolment for your company, we provide a pension auto enrolment software system, that’s perfect for setting up your teams on a pension scheme. No business can afford to get pension enrolment wrong, and with our software, you won’t have to worry about making any mistakes with your employee’s pensions.

The government introduced automatic enrolment to address the low levels of private pension savings among workers. The aim is to ensure more eligible employees have access to a workplace pension scheme and reduce future reliance on the state pension. 

Employer Responsibilities and Challenges

Employers face several responsibilities and challenges when implementing auto enrolment. They must ensure all eligible employees are automatically enrolled in a pension scheme and maintain accurate records of contributions. 

Employers need to keep up with regulatory changes and continuously assess employees’ eligibility. The administrative burden, potential financial costs, and ensuring compliance with The Pensions Regulator’s requirements can be challenging. 

Financial Implications for Employers and Employees

For employees, auto enrolment means a portion of their salary is added to their pension pot, supplemented by employer contributions. This ensures they have savings for retirement and can encourage long-term financial security. 

For employers, the financial implications include the mandatory contributions they must make for their eligible employees. While this can increase payroll costs, it also promotes employee retention and satisfaction by offering valuable benefits. 

You do not have to enrol in a workplace pension. However, your employer is legally required to auto-enrol you into a company pension scheme and make contributions towards it. You can choose to opt out whenever you wish.

If you are aged between 22 and 66 years old (state pension age) your employer must automatically enrol you into a company pension scheme. You can also opt into a company pension scheme up to the age of 74.

An auto enrolment pension is when an employee is automatically enrolled into a company pension scheme. The company makes financial contributions to their pension savings during their term of employment. You can access the pension pot when you are 55 years old (this will rise to 58 in 2028).

Some of the benefits of a private pension include additional savings for retirement, and more financial security beyond the state pension. It can be tailored to your needs, with potential tax benefits and the flexibility to choose how your money is invested.