Back to basics: Employer automatic enrolment pension duties

For employees who work or ordinarily work in the UK, the employer must determine which workers are eligible based on age and earnings. Currently, workers aged 22 to State Pension age and earning above £10,000 per year must be automatically enrolled into an automatic enrolment compliant scheme, unless statutory exemptions apply or they are already an active member of a qualifying scheme.

This is an ongoing duty, therefore employers need to be aware of triggers that might push workers into eligibility, by example, dates (e.g. a worker turning 22), or increases in pay pushing a worker over the earnings threshold, or the end of a postponement period.

Remember that enrolment cannot be contingent on satisfactory completion of any probation period. Practically, this might work should a probation period coincide with the postponement period exactly (but note this is limited to 3 months maximum and cannot be extended), however, it should not be made a condition of enrolment.

Be aware of ongoing monitoring for seasonal workers or workers whose earnings and hours may vary.

• Postponement periods can be used (providing limited to no more than 3 months) for initial automatic enrolment (not cyclical re-enrolment) to delay making an assessment of whether the worker is eligible until the end of the period. The worker must be given a notice containing information about postponement within 6 weeks of the start of the period of postponement.
• Specialist payroll software for automatic enrolment can assist with assessing the workforce, notably seasonal or temporary staff or those with fluctuating hours and earnings, at each pay cycle (providing it is compatible with the employer’s pension scheme’s system).

All staff (including those ineligible, as eligibility can change over time) must be informed about how automatic enrolment affects them, including details of the pension scheme offered and their rights, as well as whether any postponement period is in operation.

Even if a worker is assessed as not being an eligible jobholder, the employer must still give them information about the right to opt into or join the employer’s scheme.

Many employers operate salary sacrifice arrangements in connection with pension contributions (largely due to the current NI savings); however, these must be structured carefully to ensure that they meet relevant HMRC requirements for effective salary sacrifice and also do not breach automatic enrolment requirements.

Provide details of how an eligible worker can opt-out of a scheme, ensuring any opt out notice provided contains the minimum statutory requirements to be valid. Careful attention must be paid to the method of delivery of this information to ensure there is no inducement to opt out, which is a criminal offence and prohibited.

An opt-out notice must be given back to the employer within a period of one month from either the date the worker joined the scheme or the date they received the statutory enrolment information (whichever is later). This is extended to a total of six weeks should the notice be defective to allow time rectification. A valid opt out means the worker is entitled to a full refund from their employer of any contributions deducted from their pay during their opt out period. An employer must unwind any contributions made under salary sacrifice arrangements in line with HMRC salary sacrifice rules  and scheme rules.

An employer must automatically place eligible workers into a qualifying scheme without requiring them to opt in. However, an employer can operate a postponement period for up to three months, which delays this process, providing suitable notice and documents detailing such have been provided. There are also certain exemptions that can apply but this is fact-sensitive, and we recommend legal advice is sought.

The employer must contribute a minimum amount into the company pension scheme. Under current rules, the minimum total contribution (i.e., employee and employer contribution) is 8% of qualifying earnings, with at least 3% coming from the employer. An employer can choose to make higher contributions (including reducing the % ratio on employees) should they wish, providing total minimum amounts are still satisfied. The type of pension contributions will affect the % numbers, so ensure you are in keeping with the rules of any relevant scheme (or set up).

Beware of incorrectly calculated % based on the wrong earnings threshold/basis of calculation. Ensure payroll is in keeping with any scheme provisions/rules. Payroll software that is automatic enrolment compliant can assist.

Some pension schemes or employers use an alternative basis to calculate pension contributions, rather than the standard “qualifying earnings” basis. If this is the case, you must obtain certification (and renew this accordingly – usually every 18 months) confirming that this meets the minimum quality requirements for UK automatic enrolment duties.

The employer must submit a declaration of compliance with The Pensions Regulator (TPR) confirming compliance. Re-declarations must be completed within 5 calendar months of the third anniversary of the employer’s duties start date or most recent re-enrolment date.

A Declaration of compliance may still be necessary in companies with directors only, should there be 2 or more directors with employment contracts.

Do not forget to diarise the re-declaration dates, which are approximately every three years.

Under statute, employers must keep records of workers’ enrolment, contributions and communications related to provision of the pension scheme for a minimum of six years and retain opt-out notices for four years.

Ensure opt outs are in date, noting you cannot pre-emptively opt-out of the scheme (you must be enrolled first) and note the cyclical re-enrolment duties.

Employers can choose a re-enrolment date within a six-month window centred on the third anniversary (from three months before to three months after). Re-enrol eligible staff who have previously opted out and are due to be re-enrolled. This requires informing staff of this occurrence within six weeks of the re-enrolment date.

Employers cannot be “organised” and arrange pre-emptive opt outs or forms. The eligible individuals must be enrolled and then opt out again (should they wish) with valid statutory notices.

Postponement cannot be used at re-enrolment.