Pension Auto-enrolment

Introduction

Auto-enrolment requires all employers to automatically enrol certain employees into a workplace pension scheme and make contributions towards it. All employers have auto-enrolment duties, even if none of their employees qualify for auto-enrolment.

Here we explain which employees qualify for auto-enrolment and summarise employers' key auto-enrolment duties.

Which employees qualify for auto-enrolment?

Employees qualify for auto-enrolment if they are:

• Aged between 22 and the state pension age, and

• Earning more than a threshold amount, determined annually by the Department for Work and Pensions. For the financial year 2024/25, the earnings threshold that triggers auto-enrolment is £10,000 (before tax).

The minimum age threshold of 22 is likely to be reduced to 18. However, a date for this change has not yet been announced by the Government.

Employers' auto-enrolment duties

Employers have the following duties, which apply as soon as they take on their first employee.

• Monitor employees' ages and earnings: Every time they take on a new employee, employers must work out whether or not the employee qualifies for auto-enrolment into a pension scheme, based on their age and earnings. Employers who have employees who do not qualify for auto-enrolment must continue to monitor their ages and earnings to check whether they have become eligible for auto-enrolment as a result of reaching the minimum thresholds.

• Write to employees: All employers have a legal duty to write to new employees to inform them how auto-enrolment affects them. TPR provides template letters for employers to use when communicating with their employees about auto-enrolment. Go to www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an-employer-who-has-to-provide-a-pension/write-to-your-staff for more information.

• Choose a pension scheme: Employers with at least one employee who qualifies for auto-enrolment must have a pension scheme that complies with auto-enrolment rules. TPR's website provides guidance for employers about choosing an auto-enrolment pension scheme, as well as a list of pension providers that deal with smaller employers. Go to www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an-employer-who-has-to-provide-a-pension/choose-a-pension-scheme/what-to-look-for-in-a-pension-scheme for more information.

• Make a compliance declaration: All employers have a legal duty to make a declaration of compliance as soon as possible after taking employees on, providing information to show that they are meeting their auto-enrolment obligations. For more information, and to make a declaration, go to www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an-employer-who-has-to-provide-a-pension/declare-your-compliance.

Managing a pension scheme and making contributions

Employers have a range of ongoing duties regarding auto-enrolment, including:

• Processing requests to leave the scheme.

• Enrolling new employees who qualify for auto-enrolment or who decide to opt in to the scheme.

• Making employer contributions to employees' pensions and paying employee contributions into the scheme on employees' behalf.

• Keeping accurate records.

In 2024/25, the minimum total pension contribution for each employee is 8% of their 'qualifying earnings', ie all earnings between a lower limit of £6,240 and £50,000. In 2023 the Government announced plans to abolish the lower limit. However, a date for this change had not been set.

At least 3% of the minimum total pension contribution must be contributed by the employer, with the remainder being paid by the employee.

Automatic re-enrolment

Every three years, employers must automatically re-enrol employees who qualify for automatic enrolment but aren't in the employer's pension scheme, ie employees who have previously opted out of the scheme or stopped making contributions. This involves checking whether these employees still qualify for auto-enrolment, writing to them to explain the re-enrolment process and completing a re-declaration of compliance. For more information about re-enrolment, go to www.thepensionsregulator.gov.uk/en/employers/re-enrolment.

Enforcement

Employers' auto-enrolment duties are enforced by TPR. Employers who do not comply with their duties, or who are late complying, will initially be sent warning letters. If they continue to fail to comply, they will be sent compliance and penalty notices. Penalties include a £400 fixed penalty and additional fines ranging from £50 to £10,000 per day, depending on the number of employees.

For more information about enforcement, go to www.thepensionsregulator.gov.uk/en/employers/warnings-notices-and-payment-of-fines/how-we-enforce

Contact Ashored for help and support with Automatic Enrolment.