Auto Enrolment is the government’s – and it stems from governments of differing political hues – attempt to increase participation in workplace pension arrangements in order to reduce the burden on the state as the balance between workers and those in retirement changes.
Auto Enrolment requires employers to enrol eligible employees into a workplace pension, unless the employee opts out. The employer cannot force an employee to opt out.
Once enrolled, there is normally an obligation for both employer and employee to contribute to the pension. Confusingly some of the writing on the topic refers to a “government contribution” – alas this isn’t in cash, just tax relief.
The process is overseen, and regulated by, The Pensions Regulator (TPR).
“Eligible job holders” – over 22 and younger than state pension age, and earning over £10,000 pa. These staff members have to be enrolled. The employer will need to deduct employee contributions from their salary, and make the employers contribution on top.
“Non eligible job holders” – not otherwise an “eligible job holder” (above) and, between 16 and 74, and earning over the NI threshold (currently £5,824 per year 2016/17); in practice this means either (i) those aged 22 to state pension age and earning more than NI threshold but less than £10,000 or (ii) those between 16 and 21 or state pension age to 74 and earning over £10,000 (and thus not “eligible job holders” by virtue of their age). These workers have to be given a choice about opting in, and if they do then the employer will need to deduct employee contributions from their salary, and make the employers contribution on top.
“Entitled job holders” – aged 16 to 74 and earning less than amount the lower NI threshold (currently £5,824 per year 2016/17). Have a right to join an employers pension scheme and have deductions from their salary, but the employer doesn’t have to make employers contributions.
Employers cannot opt out, but employees can. However the employer has an obligation to re-enrol anyone who opts out, after three years, although the employee can opt out again.
Employers cannot coerce employees to opt out.
- Before 30 September 2018 – employer 1%, employee 1%
- 6 April 2018 to 5 April 2019 – employer 2% – employee 3%
- 6 April 2019 onwards – employer 3%, employee 5%
Employers will need to:
- register with The Pensions Regulator
- select a low charging pension scheme which complies with TPR rules (in most cases the Government sponsored NEST, but there are private alternatives)
- give information to employees
- enrol or auto enrol as appropriate
- pay deductions and employer contributions to pension company
- re-enrol after three years anyone opting out
- assess changes in the work force, eg people whose pay level or age changes, which changes their categorisation between eligible, non eligible and entitled, and enrol those coming into the system
- complete a declaration of compliance with TPR no later than five months after staging date
Remember that one person companies are employers, and directors or secretaries who receive a salary or fee are employees – conversely being a shareholder and receiving dividends doesn’t render someone an employee – the difference is between earned income (pay, wages, salary, directors fee, etc) and unearned income ( dividends ).
There are very few exemptions and notably Auto Enrolment needs to operate even if you only have one staff member, for example a sole trader plumber with one assistant or a builder paying their spouse over the NI limit as secretary.
However the following exemptions do exist:
- Office holders (directors and secretaries) who do not have a contract of employment – that is to say and fee/wage/salary is paid for their services as an officer not as an employee – this will be the vast majority of officers. This is an important exemption for our PSC clients, however if there are any other employees who are not officers (director / secretary), even a spouse who has a £100 a month salary for admin, then the exemption fails.
There is a bit more on exemptions here (but this was written before guidance was confirmed):
TPRs guidance on exemptions for officers is at:
Staging date is the term for when employers have to start operating Auto Enrolment.
Staging dates are being phased in:
For businesses in existence at April 2012
- employers with over 250 staff – between October 2012 and February 2014
- employers with 50 to 249 staff – between April 2014 and April 2015
- employers with less than 50 staff – between June 2015 and April 2017
The actual date in these ranges is determined by the employers PAYE reference.
A useful tool for checking staging dates is on the TPR website
For businesses setting up after April 2012 and up to September 2017, the staging date is between May 2017 and February 2018 regardless of payroll size:
- from 1 April 2012 up to and including 31 March 2013 – staging date 1 May 2017
- from 1 April 2013 up to and including 31 March 2014 – staging date 1 July 2017
- from 1 April 2014 up to and including 31 March 2015 – staging date 1 August 2017
- from 1 April 2015 up to and including 31 December 2015 – staging date 1 October 201
- from 1 January 2016 up to and including 30 September 2016 – staging date 1 November 2017
- from 1 October 2016 up to and including 30 June 2017 – staging date 1 January 2018
- from 1 July 2017 up to and including 30 September 2017 – 1 February 2018
Auto Enrolment will apply, potentially to:
- One person companies, eg personal service companies and very small owner only limited companies
- Companies, sole traders and partnerships with employees (other than the officers of a company)
For ease we are stratifying our clients into categories:
A – Employers (company, sole trader or partnership) who look after their own payroll.
Where requested we can assist with planning Auto Enrolment, TPR registration, TPR declaration of compliance, and possibly elsewhere, but the responsibility for compliance rests with the payroll function of the employer.
B – Employers (limited company, sole trader or partnership) where we look after the payroll.
We will need to help you:
- understand staging date
- identify staff to be enrolled
- register you with TPR, including nomination of pension scheme
- declaration of compliance
- ongoing administration including deductions and opt outs and ins
There will be an impact on existing payroll costs, which we will discuss with clients on a case by case basis.
C – Small limited companies (including PSCs) – with the only people on the payroll being officers.
We assume that you will want to claim exemption from the regime, but we will take your instructions.
Subject to your confirmation we can arrange to notify TPR of your opt out by email.
This doesn’t prevent you making other pension arrangements via your company or personally.
Pension Schemes used for Auto Enrolment have to meet certain criteria relating to governance, cost and accessibility.
Employers: if you already offer a pension scheme to external staff, you will need to take advice from the scheme manager or a Financial Advisor as to whether your existing scheme is Auto Enrolment compliant.
Directors/Officers: if you are making employer contributions to a Personal Pension, SIPP, SSAS or similar then these are unaffected by, but potentially additional to, Auto Enrolment. You can continue with these arrangements but if your company falls into one of the categories (A or B above) where TPR registration is compulsory, you will need to Opt Out of Auto Enrolment from your business payroll in respect of your own salary. If you wanted to merge your existing pensions into a low cost/easy access Auto Enrolment scheme, rather than continue them separately, then you will need to take advice from a Financial Advisor.
Detailed guidance on Workplace Pension obligations can be found on The Pension Regulators Website
To see the staging date for your business – when you have to start workplace pensions – see the table of staging points
There are other workplace pension stories and comment on our site: see them all here
- Money purchase annual allowance reduced 21/03/2017
- Government introduces pension advice allowance 20/03/2017
- Protecting pension lifetime allowances 16/03/2017
- Big increase for pensions advice threshold 14/03/2017
- Protecting pension lifetime allowances 27/02/2017
- Pensions: new employers and auto-enrolment 23/02/2017
- £1,500 Tax Free Pension Drawdown for Advice 17/02/2017
- £500 Employer Funded Pensions Advice Exemption 17/02/2017
- Auto Enrolment Exemptions 13/01/2017
- Money purchase annual allowance 04/01/2017
- Eight things you should know about pensions 21/12/2016
- Auto enrolment and seasonal workers 12/12/2016
- Master trust pensions – regulations strengthened 15/11/2016
- Auto enrolment fines – what types of businesses make declaration of compliance errors? 02/09/2016
- Automatic enrolment and small employers 14/07/2016
- Employers are hearing Workie’s message – now what should they do? 06/06/2016
- New state pension: what the changes mean for you 26/05/2016
- Auto-enrolment: declaration of compliance 19/05/2016
- Increased pension flexibility 20/04/2016
- State pension – and the over 50s 12/04/2016
- Pension Input Period (PIP) changes 28/03/2016
- Spring 2016 Budget and Technical Briefing 16/03/2016
- Auto enrolment – small company and LLP exemptions 02/03/2016
- How pension drawdown is taxed 29/02/2016
- Auto enrolment: New interactive step by step guide for employers 17/12/2015
- Boosting retirement income with state pension top up 02/10/2015
- The pensions cash trap for parents 07/09/2015
- Understanding the latest pension changes 21/05/2015
- New guidance on auto enrolment 05/05/2015
- Pension Flexibility – ‘Use them like a bank account’? 14/04/2015
- Auto Enrolment and Company Officers – new guidance 26/03/2015
- Contracted out state pension reformed 23/03/2015
- Budget 2015: changes to pensions 20/03/2015
- Auto Enrolment – updated guidance 17/02/2015
- Annual allowance of pension contributions 01/02/2015
- Pension changes for frequent movers 09/12/2014
- Acca on Auto Enrolment Staging Dates 01/11/2014
- Automatic enrolment and what you need to know 01/10/2014
- Pension schemes and inheritance tax 26/07/2014
- Pensions: eight things you need to know 20/06/2014
- Automatic enrolment into pension schemes 24/05/2014
- Budget 2014: Pensions overhaul 21/03/2014
- Pensions auto enrolment: an update 12/02/2014
- Have your say in a consultation on the future of workplace pensions. 13/12/2013
- The status of pension schemes in corporate insolvencies 25/09/2013
- Pensions auto-enrolment: understanding ‘postponement’ 21/08/2013
- Preparing for pensions auto-enrolment 16/07/2013
- Pensions auto-enrolment begins 25/02/2013
- When do I get my state pension? 21/01/2013
- Pensions reform – auto enrolment – exemptions 29/02/2012
- Pension capping: 2011-12 revised limits 14/12/2011
- Changes to Auto Enrolment for small employers 09/12/2011
- Workplace Pensions Reform 08/08/2011
- Workplace Pension reforms 06/04/2010