What are the rules and regulations of auto-enrolment?

Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. This is called 'automatic enrolment'.

Automatic Enrolment legislation states that every employer must automatically enrol workers into a compliant workplace pension scheme if they:

  • are aged between 22 and State Pension age
  • earn more than £10,000 a year
  • work in the UK

This means that the workforce must be assessed in each pay reference period, once the company has reached their Automatic Enrolment staging date, as per the table below:

Earnings Age (inclusive)
  • 16 - 21
  • 22 - SPA**
  • SPA** - 74
Under lower earnings threshold (£5,824) Entitled worker
Between £5,824 and £10,000 Non-eligible jobholder
Over earnings trigger for automatic enrolment £10,000
  • Non-eligible jobholder
  • Eligible jobholder
  • Non-eligible jobholder

**State Pension Age

The company must then take the following actions:

  • Entitled Workers:

    Can ask to opt in. Company not required to contribute.

  • Non-eligible jobholders:

    Can ask to opt-in and Company must pay contributions.

  • Eligible jobholders:

    Company must auto-enrol and then pay contributions.

In order for a scheme to be Automatic Enrolment compliant it must:

  • Allow employees to be Automatically Enrolled without making a choice
  • Require no member joiner forms to be completed
  • Have a default investment choice for the scheme
  • The scheme must be set up to deal with Opt-out requests
  • The Annual Management charge for the default fund must be 0.75% or lower.

Contribution amounts must meet the minimum levels as set out in the table below, according to the salary definition being used in the scheme:

  AE Minimums Set 1 Set 2 Set 3
Salary Definition Qualifying Earnings (£5,824 to £43,000 in 2016/17 tax year) Basic Salary Pensionable Earnings* Total Earnings
First Transitional Period Staging Date to 5 April 2018 Total 2% (Min. Employer 1%) Total 3% (Min. Employer 2%) Total 2% (Min. Employer 1%) Total 2% (Min. Employer 1%)
Second Transitional Period 6 April 2018 to 5 April 2019 Total 5% (Min. Employer 2%) Total 6% (Min. Employer 3%) Total 5% (Min. Employer 2%) Total 5% (Min. Employer 2%)
Steady State 6 April 2019 Onwards Total 8% (Min. Employer 3%) Total 9% (Min. Employer 4%) Total 8% (Min. Employer 3%) Total 7% (Min. Employer 3%)

Pensionable Earnings under Set 2 must be equal to or greater than Basic Salary and at least 85% of total earnings across the scheme.

If the employer meets the total minimum contribution requirement, then there will be no requirement for the employee to contribute, however they can do so if they wish.

Once the scheme is in place the company will need to complete a declaration of compliance to confirm that they have met the requirements of the legislation. This can be completed online via the regulators website and is used to confirm that an employer has complied with their duties.

The Pensions Regulator also provides an online checklist.