UK: Pensions Auto-Enrolment - The Facts

Last Updated: 30 October 2012
Article by Caoimhe O'Neill


Every employer in the UK will at some point over the next five years have to deal with their obligations to automatically enrol their employees in a pension scheme. For an employer who has never operated a pension scheme before, the new legislation is likely to create a significant new burden.

What does pensions auto-enrolment mean for employers?

All UK employers have been placed in bands according to the number of workers in their PAYE scheme. Each band has a different "staging date" on which they must start the auto-enrolment process. The largest employers have already started the ball rolling on 1 October, with smaller employers following afterwards. The idea is that by 2018 every employer in the UK will be on board.

First things first

Employers will have to assess their workforce to determine which of their workers are 'eligible jobholders' for the purposes of automatic enrolment. There are various criteria but the main ones to be aware of are:-

Age: workers who are at least 22 years old, but beneath state retirement age

Earnings: workers who earn more than £8,105 (the 2012/13 tax year threshold)

Workers who are too young or too poorly paid to be eligible jobholders still have certain rights under the new regime as 'non-eligible jobholders' or 'entitled workers'.

Continued monitoring of your staff

As age and pay change over time, employers will have to monitor every worker's status each time they are paid, until the worker hits the point when they are entitled to be automatically enrolled.

A significant number of your staff may be young, part-time and/or transient. These workers are more likely to hover just below or on the cusp of the eligibility bands for automatic enrolment – increasing the employer's monitoring and administrative obligations.

Example: Kate & Bond Bars

Kate is a 21 year old university student who works part-time for Bond Bars Limited, a national chain of theme bars. She is paid national minimum wage (NMW) for her two evenings a week (each shift is 5 hours long). She is paid weekly and sometimes she does extra shifts.

As Kate is under 22 and earning less than the threshold, she does not have to be automatically enrolled. Nevertheless Bond Bars, as her employer will have to consider whether she is an 'entitled worker' or 'non-eligible jobholder' and continue to check her status.

Six months later, Kate celebrates her 22nd birthday and her graduation from university. However she is struggling to find a job in the current economy so she increases her shifts and starts doing two 7 hour day-shifts in addition to her evening shifts.

Kate now passes the age test, but despite her increased shifts she is still only working a 24 hour week, which on NMW will be just below the qualifying threshold.

A few weeks later, another staff member is on holiday and Kate agrees to cover her shifts.

This takes her weekly pay over the auto-enrolment threshold and now Bond Bars have to automatically enrol her in the Bond Bars pension scheme.

The following week she drops back down her normal shift pattern.

She has already passed the threshold and the requirement to enrol her doesn't fall away.

Enrolment in the pension scheme

You may already have a 'designated stakeholder scheme' which you could use for auto-enrolment. However you will need to check with your current provider that the scheme is fit for auto-enrolment. You may also wish to consider the statutory scheme that has been set up for the purpose, NEST (the National Employment Savings Trust) or one of the other similar schemes available on the market. NEST and its ilk might be attractive to the short-term or younger employee, as they don't have to worry about accruing lots of small pension savings with multiple employers.

Making contributions

Employer contributions will be phased in during the first three years of the new regime (1% of salary in year one, rising to the target 3% in year 3). Employees must make contributions of 5% (including tax relief) which will also be phased in.

Employee opt-out

The obligation to automatically enrol is your responsibility as an employer, however employees who have been automatically enrolled will have, for one month, the right to opt out of the pension scheme. If the employee chooses to exercise the right to opt-out, he or she will be treated as never having joined the pension scheme and be entitled to a full refund from his or her employer of any contributions he or she has paid and any employer contributions paid on his or her behalf (less tax).

Jobholders who have opted out will have to be automatically re-enrolled every three years, again the monitoring and re-enrolment is your responsibility as an employer.

Dealing with temporary and agency staff

If your employees come and go fairly frequently or perhaps you use a probationary period, then you may wish to consider the three month 'grace period' offered by the legislation. This permits you to suspend the auto-enrolment monitoring for the first three months of your workers' employment.

If you use temporary staff from an agency, then provided that you don't pay the agency worker directly, the agency will be responsible for monitoring the worker for the purposes of auto-enrolment. It is highly likely that the agency will pass any pensions cost back you as part of the overall charge.


You cannot do anything during the recruitment process or the employment relationship that encourages eligible jobholders to opt out, or non-eligible jobholders not to opt in. You shouldn't treat a worker unfairly or put them at a disadvantage because of auto-enrolment (for instance refusing to give pay increases to those who have not opted out or deducting the employer contributions from the employees' wages).

Breaching these requirements or any of the other key obligations could result in a very hefty penalty fine from the Pensions Regulator! Criminal penalties could apply in the cases where the failure to comply is considered 'wilful' so deliberately ignoring this issue could be a risky strategy.

Steps to be taken before your staging date

The Pensions Regulator should by now have already told you when your staging date is. The Regulator will write to you again about a year or so before your staging date, but there are some things you can start to think about now:-

  1. If you already have a pension scheme, check whether it's a 'qualifying scheme'.
  2. Carry out a workforce assessment to identify your 'workers' and then work out which ones qualify as eligible jobholders, non-eligible jobholders and entitled workers.
  3. Decide whether you wish to use the three month postponement period.
  4. Review your contracts of employment to include appropriate wording on auto-enrolment and think about employee communications.
  5. Speak to your payroll provider and see what support they can give you.

Obligations after your staging date

  1. Provide information to your eligible jobholders, telling them that they have been automatically enrolled and that they have the right to opt out if they want to do so.
  2. Register with the Pensions Regulator, giving details of your qualifying scheme and the number of people that you have automatically enrolled.
  3. Continue to monitor your non-enrolled employees and enrol (and re-enrol) as necessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Caoimhe O'Neill
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