Pensions Auto-Enrolment – the full details

From October 2012 most workers will start being auto-enrolled into a pension plan by their Employer (under the Pensions Bill that also abolished the Default Retirement Age during 2011) – here we give you the full details of the scheme.

Employers will have to start paying up to a minimum of 3% of each worker’s monthly salary, starting from October 2012 into a pension scheme and manage their workers’ contributions and the pension fund, if the worker is not already in a suitable pension scheme.

[Article updated 2018]

• However, there is a ‘phasing’ stage for Employer contributions – eventually Employers must make a minimum contribution of 3%, but can pay more, and workers make their own contributions with a minimum of 5% (they will get tax relief on their contributions) – combined, these contributions should be a minimum of 8% of the workers earnings. Initially, however, Employers who have a staging date up to 5th April 2018 (see below) must make a 1% minimum contribution (and the worker a minimum of 1%). From 6th April 2018 Employers must make a 2% minimum contribution (and the worker a minimum of 3%). From 6th April 2019 onwards the Employer minimum will be 3% and the worker minimum must be 5% (so 8% total).

• The start date for the scheme will be staggered by business size and the applicable start dates (called the ‘staging’ dates) are below. The 1st April 2012 is a crucial date though, as the number of PAYE staff that are employed by an Employer at that date, determines that ‘staging’ date the Employer has to start offering the scheme.

This will apply to all workers aged 22 and over (but who have not yet reached the State Pension age) who earn more than £10,000 per year and who work in the UK. This figure, known as the ‘qualifying figure’ is the 2014/15 PAYE threshold but remains through to 2018/19), will be reviewed annually and is made up a worker’s pay, overtime, commission, bonuses, statutory sick pay and statutory maternity/paternity/ adoption pay. These workers will be called ‘eligible job holders‘ under this legislation and must be auto-enrolled into the pension scheme.

Workers aged between 16 and 22, and those aged between State Pension Age and 75, and those who are earning more than £6,032 (the 2018/19 Lower Earnings Limit), may join the scheme if they choose (opt-in) and will receive Employers contributions. These workers are called ‘non eligible job holders‘ under this legislation, but have no right to be auto-enrolled; they must choose to join.

Those workers earning £6,032 (from 6^th April 2019) can also choose to join a pension scheme you offer but may not be eligible for Employer contributions. These workers are called ‘entitled’ job holders and Employers do not have to make contributions for these workers; these workers do not have to join the scheme you have chosen for automatic pension enrolment, it can be any scheme you offer they can join.

The upper limit of the qualifying earnings band is £46,350 (2018/19 figure) – so Employers will only need to make contributions from the Lower Earnings Limit Level to an upper limit

This includes agency workers.

Eligible jobholders will have to be enrolled automatically by the 12th week of their employment but can choose to opt-back out of the scheme after auto-enrolment.

• Employers must communicate to their workers, in writing, when their scheme is starting and how the workers are affected by this. The Employer must tell them they have been automatically enrolled and also that they have the right to Opt Out if they want to do so. From 1st April 2014 Employers have 6 weeks to provide information to workers on their joining and opting out rights.

• To Opt Out of the pension scheme a worker must complete an ‘opt-out’ notice within the first month of being auto-enrolled – and will receive a refund of contributions made. A Worker can leave the scheme at any other time if they do not Opt Out, but will not receive a refund of contributions.

• Every 3 years all those who have Opted Out will need to be re-enrolled in the scheme (but again can choose to Opt Out).

The Pensions Regulator will contact all Employers 6-12 months before their staging date with full details.

Employers must register with The Regulator and give them details of their scheme and the number of people that have been automatically enrolled. If an Employer does not offer their own pension scheme they will need to choose one (The Pensions Regulator have produced information to help with this which is here) or they can use the new National Employment Savings Trust (Nest) scheme.

If an Employer already has their own pension scheme they will need to check it is a qualifying scheme and confirm this with the Regulator– a qualifying scheme must not impose barriers, such as probationary periods or age limits for members; or must not require staff to make an active choice to join. The Department for Work and Pensions have published a ‘toolkit’ for Employers.

In addition, from 2012, Employers must not:

• Encourage workers to opt out of the pension scheme (e.g. by using inducements to encourage a worker to Opt out – a salary increase or one-off payment in return for a worker opting out)
• Have recruitment practices in place that benefit job applicants who indicate they are prepared to opt out, or screen out applicants who wish to join the pension (e.g. the Employer must not ask questions or make statements that state or imply that a job applicant’s success is dependant on whether or not they would opt out of the pension scheme; or for example include an Opt Out form as part of a general application pack).
• The Pensions Regulator will be responsible for any breaches by an Employer in the above two circumstances.
• Treat a worker unfairly or put them at a disadvantage or dismiss them because of automatic enrolment (there will be no time limit needed by employees to claim unfair dismissal in these circumstances).
• Employees will also be able to ‘whistle-blow’ if the feel they have been subject to detriment or dismissal for making a protected disclosure under whistle-blowing legislation, if their employer fails to comply with the auto-enrolment legislation.
• To see more details about all of these details see our new article about what is required of businesses from 1st July here.

Staging date timeline

List of staging dates by PAYE scheme size (as of March 2012):

Staging dates for employers with fewer than 250 persons in their PAYE scheme:

Employers are allowed to bring their staging date forward, but it must be from a list of available dates here.

Employers can choose to delay working out who to put into a pension scheme for up to three months for some or all of your staff. This is known as postponement. You can read more details here.