Auto-enrolment was first introduced back in 2012 as part of a government initiative to make it easier for more people to save towards retirement and place obligations on employers to offer accessible pension schemes.
However, we often speak with clients unsure of the current regulations or who find the rules confusing when it comes to staff opting out, working part-time, or simply uninterested in being auto-enrolled.
In this guide, we'll summarise how it all works, what you need to do to meet auto-enrolment expectations, and how to deal with varying staff categories.
Obligations for UK Businesses to Offer Workplace Pension Schemes
Every employer is legally required to offer staff a workplace pension scheme and to make at least the minimum employer's contributions. While not every employee will be eligible for auto-enrolment, most are – the business can't decide not to auto-enrol somebody, even if they express a wish to be excluded.
Instead, the onus is on the employer to provide access to the scheme and to complete auto-enrolment and for the employee to opt-out if they wish. Staff who decide to opt out should be re-enrolled after three years and have the option each time of opting out.
For most staff, the opportunity to begin a pension pot and boost their retirement savings with contributions from the employer is positive, so you cannot choose not to offer a pension scheme, irrespective of whether you have a very small workforce. However, you should ensure staff understand the opt-out process:
They can opt out within one month of having been automatically enrolled – any contributions made will be returned.
Opting out past the deadline means contributions cannot be refunded, although they’ll remain in the pension fund.
Employees can ask to join at any point, although they will be auto-enrolled on the three-yearly basis we’ve mentioned unless they submit a request.
Any British company that employs staff needs to provide a workplace pension and comply with these rules. Note that employees who don't qualify for auto-enrolment can still decide to join and should be made aware of the scheme details and how to submit a request.
Which Companies Are Obligated to Have a Staff Workplace Pension Fund?
The rules are designed to ensure that almost every employer must have a workplace pension – even if none of their staff want to join. If the below apply, and you don’t have a pension fund, you must set one up:
The company has at least one employee above the age of 22 but below the State Pension age.
Staff earn over £10,000 a year – even if that is one staff member.
You trade in the UK and provide your employees with employment contracts.
The normal place of work for your staff is in the UK.
If you run an owner-managed company and are your only employee, director and shareholder, you may be exempt – assuming you don’t want a workplace pension fund or have other retirement savings structures in place.
However, we'd always recommend checking this or getting in touch to verify whether you are indeed outside of the scope of auto-enrolment legislation.
Managing Workplace Auto-Enrolment
The eligibility criteria we’ve run through apply to all staff, whether they’re on a short-term contract or permanently employed, whether they work full or part-time, and regardless of whether they are on a period of statutory leave such as maternity leave.
You must provide the option of joining a workplace pension, even if your staff earn below the minimum threshold – so it’s necessary to have the fund there and available should anybody wish to opt in, now or in the future.
Auto-enrolment is mandatory for most staff, although it isn't required if your workforce member:
Has handed in their notice.
Has opted out of this or another pension in the last 12 months.
Already has another workplace pension that complies with auto-enrolment requirements.
Has previously retired and drawn a lump sum from a workplace pension before returning within one year.
Is an EU national and already has an appropriate pension fund.
Alongside needing to assess each employee to check whether they meet the criteria for auto-enrolment and following their instructions about opting in or out, you need to ensure you make at least the minimum contributions to each employee's pension pot.
Minimum Employer’s Pension Contributions for Workplace Pensions
The total minimum contributions between employer and employee should be 8% - with the employee contributing at least 5%, with a minimum 3% top-up from the employer. There are specific calculations you use if you choose to pay the minimum based on a set earnings range decided by the government each tax year.
In the 2023/24 tax period, employers should make the contributions based on a percentage of pay for any employee with annual earnings between the lower limit of £6,240 and the upper £50,270 qualifying earnings band – these thresholds have remained static this year.
Businesses can absolutely choose to pay above the minimum as part of their recruitment and retention packages but are obliged to contribute at least the minimum.
Should you have any questions about workplace pensions and auto-enrolment, wish to outsource your pension and payroll processes, or require advice about the right pension schemes for your business, please get in touch with the SAS team at any time.