Pension auto-enrolment: what employers need to know

This guide is based on UK law. This was updated in January 2011.

Between October 2012 and September 2016, employers will need to automatically enrol all of their "jobholders" in a workplace pension scheme or in the National Employment Savings Trust (NEST) - a national defined contribution pension scheme.  Minimum employer contribution levels will also apply.  Jobholders may choose to opt out of the scheme, though.   

1. Employers should identify the date when they must start auto-enrolment.  The largest employers will start from 1 October 2012, with smaller and new businesses phased in over the next four years.  There is a link below to a document published by the Department for Work and Pensions, showing when auto-enrolment will apply to employers of different sizes.
2. Employers should check in advance whether their existing pension scheme meets the minimum requirements for auto-enrolment.  This includes minimum contribution levels (for defined contribution schemes) or benefit levels (for defined benefit schemes).  Also, the jobholder must not be required to provide any information or to express a choice (for example, about the investment of contributions) in order to become an active member. 
3. Employers should identify their jobholders and establish which of them are not already enrolled in a compliant scheme.  Jobholders include employees, temporary workers, directors employed under a service contract and agency workers (who are considered to be employed by whoever is responsible for paying them).  They must have a minimum level of earnings (set at the income tax threshold) to qualify.  Jobholders aged between 22 and state pension age who are not already members of a compliant scheme will need to be automatically enrolled in one.
4. If any jobholders are not already enrolled in a compliant scheme, employers should consider NEST or alternative solutions (eg a career average earnings scheme, or a trust-based or contract-based defined contribution scheme) to meet the auto-enrolment requirements.
5. Employers will need to check that they are satisfying the requirements in respect of minimum contribution levels for their employees.  For auto-enrolment purposes, contributions are based on a definition of earningswhich includes salary, wages, commission, bonuses and overtime.  Contributions are only paid in respect of earnings in a defined band (currently £5,035 to £33,540). Contributions to an existing scheme may be based on a different definition of earnings, so company payroll systems may need to be updated.
6. There will be an optional waiting period of up to three months before an employee needs to be automatically enrolled into a workplace pension.  Workers can, however, opt in during the waiting period.
7. Employers should also put processes in place to identify auto-enrolment triggers for existing employees and new joiners (eg when they turn 22 or reach the minimum level of earnings). 
8. Individuals can opt out of scheme membership, within one month of becoming a scheme member or receiving enrolment information.  If they do so, all contributions must be refunded.  Someone who has opted out can apply to re-enrol, but only once in a 12-month period.  Automatic re-enrolment will apply every three years, although employers will have some flexibility about when re-enrolment should take place.
9. Employers will need to communicate with staff about auto-enrolment and explain that they have the right to opt out if they wish.  Employers must also report to the Pensions Regulator to confirm that they have complied with their auto-enrolment obligations.
10. Employers cannot encourage jobholders to opt out of auto-enrolment nor can they encourage candidates to do so during the recruitment process – penalties will apply.  Employers should bear this in mind when communicating with their workforce about the new requirements.

See also: 

• The Department for Work and Pensions has published a table showing when the new requirements apply to employers of different sizes (1-page / 29KB PDF)
• The Pensions Regulator has issued a short guide to auto-enrolment
• More information about NEST can also be found online

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