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Pension Auto Enrolment for Small Businesses & Employees: The Ultimate Guide (Scotland, England & Wales, NI, UK)

Read our complete guide to pension auto enrolment in the UK from our team of employment lawyers & financial advisers below. If you need expert advice with pension auto enrolment whether you are based in Scotland, England, Wales or Northern Ireland, we can help.

Need fast, expert advice? Contact us on 0808 223 2962

The rules on workplace pensions have never been particularly easy to understand. In taking on a new job, people may be interested to know what, if any, contribution their employer will make to their pension. Equally, employers may not always have a clear understanding of the obligations that they owe to their staff by entering into an employment contract with them. 

Automatic Pension Enrolment ADVICE FOR SMALL BUSINESSES, Larger Employers and Employees – Everything You Need to Know

Recent evidence has found that people in the UK are living longer, but not saving enough to provide for themselves in retirement. As a result, legislation has been put in place to oblige employers to automatically divert a proportion of employees' salaries into a pension pot, and to make some additional contribution. These are called ‘automatic enrolment’ pension schemes. In light of the importance of the rules on workplace pensions, this guide sets out in detail everything that you need to know about automatic enrolment, whether you own or run a small business, larger company or whether you are an employee of one or if you are an accountant or independent financial adviser (IFA) looking for answers to more challenging questions and ultimately looking to advise your own clients.




What is ‘Automatic Enrolment’?

The rules governing workplace pensions have changed in recent years. In October 2012, automatic enrolment was initiated. Automatic enrolment is where employers with at least one member of staff on their payroll – provided they meet certain criteria - enrol them into a workplace pension scheme and make some contribution to their employee’s savings. This is called ‘automatic enrolment’.

Automatic enrolment into a pension scheme is being phased-in gradually, with the scheme expected to apply fully by 1 April 2017.

How does Automatic Pension Enrolment work?

Whether a small business, large company or other organisation, employers must enrol their staff members into a workplace pension scheme automatically, provided that they meet certain criteria. The arrangements for automatic enrolment in a workplace pension depend on whether an employee is engaged in full or part-time work, and whether they earn less than a certain salary. 

If an employee is engaged in full-time work and:

i.    Is aged over 22;
ii.    Is under the state pension age;
iii.    Is not enrolled in a workplace pension scheme already; and
iv.    Earns more than £8,105 per year

Then they will automatically be enrolled into a workplace pension scheme. The scheme is called ‘automatic’ because the employee does not need to do anything themselves – it is the employer’s responsibility to organise this. 

The situation facing part-time employees is slightly different. They will not be automatically enrolled into a workplace pension scheme where they earn less than £8,105 per year.  They can, however, ask to be enrolled if they wish. Furthermore, if they earn more than £5,564 per year then their employer will be required to make a contribution to their pension too.

Where an employee is under the age of 22 or are perhaps over the state pension age, they are entitled to opt-in to a workplace pension scheme in the same way as part-time employees. 

Does everyone have to take part in this?

Employees are not forced to participate in a workplace pension scheme. They are entitled to ask that they are not included in automatic enrolment pension schemes. Many people do in fact opt out of automatic enrolment for different reasons:

  • Due to the cost of living, they cannot afford for any proportion of their monthly salary to be put into a pension at that point in time; or
  • Some people may have already set up a private pension that they feel will satisfy their requirements when they retire.

It is important to understand that there is a process for opting-out of what would otherwise be an automatic process following employment. When someone takes up employment, they will be given details by their employer about the pension scheme that they would be enrolled into. This will normally set out in detail who the pension provider is. Employees may then approach the provider and ask to be given an opt-out form. Provided that this paperwork is completed within one month of their receiving it, they will not be involved in the workplace pension scheme.  

What happens if an employee is late in filling out their opt-out paperwork? In these situations an employee will normally be enrolled into the pension scheme, and start to accumulate some money for their pension. When the opt-out paperwork is received, their contribution to the scheme will stop.  The money that has already been paid into the pension scheme will however remain there until the employee retires, when they can then make use of it. 

What do employees have to do?

There is very little that employees have to do in terms of participating in automatic enrolment pension schemes. They will in most cases begin making contributions under this scheme following employment.

However, if an employee chooses to opt-out of automatic enrolment, then they must follow the opt-out procedure outlined above. They will be enrolled every three years by their employer. If, however, they take on a new job, their employer will be obliged to enrol them into the scheme after three months. If an employee still does not wish to participate in the workplace pension scheme, then they must go through the opt-out process again. 

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What do employers / Small Businesses have to do? (Auto Enrolment Staging Date Advice & More)

There are a number of things that employers have to do (whether small business or large company), if they are participating in automatic enrolment:

i.    Establish the staging date

The ‘staging date’ is that date at which employers duties for automatic enrolment come into effect. You can find this out from the Pensions Regulator (www.thepensionsregulator.gov.uk) through a form that looks like that shown below.  Generally speaking, if an employer pays their employees via PAYE, then they can find out what their staging date is by using the PAYE reference number. On the other hand, if an employer does not pay wages through PAYE, the staging date for automatic enrolment will be 1 April 2017.


ii.    Give a point of contact

Having found out their staging date, the next job of an employer is to provide the details of a senior person in the business who is to be the point of contact.  In almost all cases, this should be the business owner, as they are responsible in law for complying with changes to pensions rules. 
It is possible for a business owner to appoint someone else as the point of contact regarding automatic enrolment, but this should be someone who will have daily involvement in managing payments, e.g. financial advisor or in-house accountant

iii.    Establish who is to be enrolled

It is incredibly important that employers are very clear on who they have to enrol in the pension scheme. This should be done using the criteria set out above. This should then be used to set out how much employees will be paying into the scheme, and how much employers themselves will be contributing. This information can then be used to choose a pension scheme that will satisfy the automatic enrolment requirements (or to make sure that an existing scheme is compliant with these rules).

iv.    Observe employer duties

The administrative work should be completed well in advance of the staging date. It is possible to delay the commencement of automatic enrolment for up to three months, but all employees must be notified of this in writing. At the staging date, employers must begin to discharge their duties:

a.    Inform staff members of the nature of the pension scheme and how automatic enrolment applies to them;

b.    Keep detailed records of staff and contributions to their pension under automatic enrolment. Employers must also continue to make the PAYE contributions every month, and regularly review their staff for new additions to them team;

c.    Every three years, employers must re-enrol members of staff into their pension scheme.  The Pensions Regulator will notify employers in advance of the date when the re-enrolment date, giving them time to complete the administrative work again; and

d.    The most important obligation on employers is to confirm to the Pensions Regulator that they have discharged their obligations under automatic enrolment. This is done by their completing a ‘declaration of compliance’, which must be done within 5 months of the staging date. Failure to do so can result in employers being issued with a substantial fine.

NEED MORE ADVICE? CALL 0808 223 2962 

What is the benefit of Automatic Enrolment?

The point of employees’ automatic enrolment in a workplace pension is to encourage their saving for retirement:

  • Employee’s no longer need to be overly concerned about taking complete responsibility for saving for their pension, as their employer will simply deduct a proportion of their monthly salary to be placed into the pension; and
  • Ultimately more money is put into an employees’ pension pot under these schemes, as employer will make their own contribution in addition to that of their employee’s. These contributions would otherwise be unavailable to employees.

How much is paid into an employee’s pension?

It is important to understand that in an automatic enrolment workplace pension scheme, there are in fact three different groups that will contribute to an employee’s pension:

  • The employee themselves, via contribution from their monthly salary;
  • A contribution from the employer every month; and
  • A contribution from the UK Government in the form of income tax relief. 

With an automatic enrolment workplace pension scheme, a minimum percentage of an employee’s ‘qualifying earnings’ will be paid into a pension scheme. ‘Qualifying earnings’ is defined in one of two ways, either:

i.    The amount an employee earns before tax applies, between £5,824 and £42,385 per year; or
ii.    An employee’s entire salary before tax applies.

It is the employer that will decide how to work out an employee’s ‘qualifying earnings’. However, the percentage of payments into a pension pot will in most cases be based on the following formula for a minimum contribution:

  • An employer will deduct 0.8% of an employee’s ‘qualifying earnings’ and place this into the pension pot. This deduction will rise to 4% by the year 2018;
  • An employer will contribute 1% of an employee’s ‘qualifying earnings’ into the pension pot.  As with the employee’s salary contributions, this will rise to 3% by 2018; and
  • The government will pay 0.2% of an employee’s ‘qualifying earnings’ into the pension savings. This will rise to 1% by 2018. 

It is important to be aware that the minimum payments that are outlined above can be higher, depending on the rules for a particular pension scheme. In most defined benefit pension schemes, the minimum payments will be higher for both the employee and employer. Other schemes will in most cases allow both employee and employer to contribute more than the legal minimum. Furthermore, in other schemes employees may choose to contribute less provided that the employer pays enough to meet the minimum payments.

When does an employee get access to their workplace pension?

If an employee has been paying into a scheme under automatic enrolment, they will not be able to get access to the funds until they turn 55. The pension provider will in most cases have notified them of this, and have asked them how they would like their payments to be invested, i.e. high risk, or low risk investments.

Pension Auto Enrolment Advice for UK Financial Advisors

pension-auto-enrolment-advice-financial-advisersThe impact of auto enrolment on employers has been significant: many employers are now faced with a number of decisions and obligations that historically had been none of their concern. As a result, they are increasingly looking for more advice and assistance from financial advisors in observing their obligations in respect of auto enrolment.

At Unlock The Law, we are very familiar with the rules governing auto enrolment. Here we set out some of the ways that you can support your clients in negotiating the rules governing auto enrolment.

Where do Financial Advisors fit in?

Auto enrolment imposes a number of new obligations on employers. It is very possible that some employers may look to pass these responsibilities to their Financial Advisors, in the hope of relieving themselves of the administrative burden involved in complying with auto enrolment. However, this can result in Financial Advisors themselves becoming embroiled in administrative duties, which do not equate to commercially significant transactions.

The reality is that employers will need ever increasing support from their Financial Advisors in respect of auto enrolment compliance. Some of the many ways that you can support your clients, and succeed commercially in providing your service, include:

  • Presenting employers with the different pension schemes available that will meet the requirements of auto-enrolment. Pensions, by their very nature, are complex commercial arrangements, and employers will require rigorous support in understanding the implications of these both for themselves and for their employees;
  • Assisting employees in grappling with basic concepts in respect of their being part of an auto-enrolment pension scheme. Employers may lack the time and resources to properly educate their staff in this respect, providing Financial Advisors with an excellent opportunity to provide materials to explain the nature of auto-enrolment in greater detail;
  • Offering innovative solutions to employers to manage the ever changing make-up of their workforce and pension obligations under auto enrolment. Auto enrolment costs will change from time-to-time, reflecting the nature of an employer's workforce.

Furthermore, contributions to auto enrolment will also have to be renewed. Financial Advisers can present employers with a range of sophisticated, but accessible tools to manage their responsibilities under auto enrolment.

The fact of the matter is that many employers will not readily take advice on auto enrolment where advice is not presented in an attractive, and commercially valuable, manner. Financial Advisors can make a significant contribution to employers' satisfaction of their responsibilities in respect of auto enrolment, provided such advice is sufficiently effective. At Unlock The Law, we regularly assist individuals grappling with the realities of dealing with auto-enrolment. We take pride in providing detailed advice and assistance to Financial Advisors, in supporting their clients to negotiate the often complex field of workplace pensions. To find out how to increase the contribution that you can make to employers in dealing with auto enrolment, speak to our team today.

We also have a useful guide to early pension release / unlocking here.

NEED MORE ADVICE? CALL 0808 223 2962

Auto Enrolment Advice for UK Accountants & Payroll Professionals

auto-enrolment-advice-accountants-payrollAt Unlock The Law, we understand that the introduction of auto enrolment obligations is having a profound impact on employers. In many cases, they are looking for more assistance from other professionals to help them observe the requirements in respect of employee auto enrolment in a workplace pension.

Here we give an overview of how you, as either an accountancy or payroll professional, can assist employers to implement their obligations in dealing with auto enrolment.

What is the role for Accountants?

Accountants can offer employers a great deal of support in implementing their auto enrolment obligations. It should be noted, at the outset, that accountants are not required to identify a particular pension scheme under auto-enrolment. Employers must satisfy themselves whether a particular scheme would suit their needs.

However, accountancy professionals will have an important role to play in helping employers to identify the costs of implementing their auto-enrolment obligations. This will include appraising employers of the finances required under a particular scheme, and in observing continued contribution to the pension scheme over an extended period of time. It is also incredibly important that accountants ensure that employers appreciate that the satisfaction of their auto-enrolment obligations is an on-going process. Employers will, in most cases, require assistance in managing changes to their workforce, and the resultant impact this will have to their pension payment contributions. Furthermore, accountancy professionals will also be incredibly useful in being able to manage the inclusion and exclusion of employees, particularly when faced with employee opt-outs from the scheme.

What is the role for Payroll?

Payroll personnel, like their colleagues in accountancy, will be of immense support to employers in observing the auto-enrolment rules. An area where payroll professionals will be particularly important to employers concerns the issuing of the necessary payment under auto enrolment to the pension provider. Working in collaboration with accountancy and other professionals, payroll personnel will be increasingly needed to assist in balancing pension payments and other liabilities that are provided to pension providers.

Furthermore, practically speaking, the importance of the payroll department will also increase. A number of employers lack specialist in-house personnel to facilitate the observance of auto enrolment obligations across what may be a well populated workforce. Proficient payroll personnel will be able to design systems that allow for an employer's obligations under auto enrolment to be discharged effectively.

At Unlock The Law, we understand that professionals that work to support employers may be wary of becoming overly involved in auto enrolment. The implementation of workplace pension legislation has had a significant impact on employers, and their team. Our team understand the anxiety that the new rules can cause for professionals. At Unlock The Law, we are here to support you in assisting your employer to discharge their obligations to their workforce under auto enrolment. To find out how we can help you, contact us today.

NEED MORE ADVICE? CALL 0808 223 2962

At a Glance: Key Points on Pension Automatic Enrolment

  • Workplace pension rules have changed: every employee is automatically enrolled into a pension under the new rules.
  • Employees can opt-out from being included in automatic enrolment if they wish.
  • Employees that decide to opt-out of automatic enrolment will not enjoy pension contributions from their employer.
  • Employers are under an obligation to satisfy their automatic enrolment duties, failure of which can result in a fine being issued.
  • Employers’ obligations under automatic enrolment are governed by strict deadlines.
  • Employers must check with their pension provider that the scheme that is operated can be used under automatic enrolment.
  • The sum of money that is contributed to an employee’s pension under automatic enrolment rules will depend on the nature of the pension scheme.
  • Employees can choose to contribute less under automatic enrolment, but their employer must pay enough to meet the minimum payment.

Nothing in this guide is intended to constitute legal or financial advice and you are strongly advised to seek independent legal or financial advice on matters that affect you.

Get Quick, Expert Automatic Pension Enrolment Advice - London, Manchester, Glasgow, Edinburgh & More

Need more advice on pension auto enrolment in the UK from our team of employment lawyers & financial advisers? Whether in a small business or large company, our friendly experts can give you the fast, expert advice you need wherever in the United Kingdom you are based (London, Manchester, Birmingham, Leeds, Liverpool, Bristol, Edinburgh, Glasgow, Aberdeen & more).

Get in touch today. Need expert advice? Contact us on 0808 223 2962

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Last Updated

Thursday, 28 January 2016


Employment Law