Auto-enrolment is a UK government initiative introduced by the Pensions Act 2008 to help workers save for retirement. If you run a business with at least one employee, here’s what you need to know in simple terms.
What Do Employers Need to Do?
If you employ one or more workers, you’re required to:
- Set up a workplace pension scheme that meets government standards.
- Automatically enrol eligible employees into the scheme.
- Contribute to their pension pots.
- Allow other employees to join the scheme if they request it.
Who Qualifies as a “Worker”?
A worker is someone who:
- Has a contract to provide personal work or services for payment (money or benefits like future work).
- Can’t freely send someone else to do their job (subcontracting).
- Must show up for work, even if they don’t feel like it.
- Is guaranteed work as long as their contract lasts.
- Isn’t working through their own limited company where the “employer” is a client or customer.
Who Needs to Be Auto-Enrolled?
You must auto-enrol employees who:
- Are classified as workers (see above).
- Are aged 22 to State Pension age.
- Earn over £10,000 per year (based on 2016-17 figures).
- Have “qualifying earnings” (usually earnings before tax between £5,824 and £43,000 per year in 2016-17).
Employees aged 16–21 or State Pension age to 74 can opt in if they choose.
Who’s Exempt from Auto-Enrolment?
You don’t need to set up auto-enrolment if:
- You’re a sole director company with no other staff.
- Your company has multiple directors, none with employment contracts, and no other staff.
- Your company has multiple directors, only one with an employment contract, and no other staff.
- Your business has stopped trading, gone into liquidation, or been dissolved.
- You no longer employ people in your home (e.g., cleaners, nannies, or care assistants).
When Do You Need to Start?
Auto-enrolment is being rolled out gradually, starting with larger employers. Your staging date is the deadline to have a pension scheme ready and begin enrolling eligible workers. You can find your staging date using the Pension Regulator’s online tool.
Employer Responsibilities
Here’s what you’ll need to do:
- Write to each employee to explain how auto-enrolment affects them.
- Pay a minimum percentage of their qualifying earnings into the pension scheme.
- Submit employee data and pension contributions to the Pension Regulator every pay period.
- Monitor employees’ ages and earnings to see if anyone needs to be auto-enrolled.
- Re-enrol eligible employees every three years if they’ve opted out.
- Optionally postpone auto-enrolment for up to three months.
Benefits and Costs
- Costs: Pension contributions may reduce your profits, but they’re a deductible business expense.
- Benefits: Offering a pension scheme boosts employee benefits and supports their future.
Employee Rights and Impact
Employees have choices and benefits under auto-enrolment:
- They can opt out or opt in to the pension scheme (employers must not influence this decision).
- Auto-enrolment applies to those earning over £10,000 annually, aged 22 to State Pension age.
- Joining a pension reduces take-home pay but builds retirement savings.
- Employees may qualify for tax credits, increased benefits, or reduced student loan repayments.
- Those aged 16–21 or State Pension age to 74 can opt in.
- Directors without employment contracts are exempt.
- Employees who opt out are automatically re-enrolled every three years and can opt out again if they wish.
Getting Started
We’re not pension advisors, so we recommend seeking independent advice to choose the best pension scheme for your business and employees. Once you’ve selected a scheme, we can help you set it up with your payroll system.
For more details or to check your staging date, visit the Pension Regulator’s website.