12 FAQs about pension auto-enrolment
- Does pension auto-enrolment apply to my business?
- What must I do if I'm late starting the auto-enrolment pension scheme or making contributions?
- Does auto-enrolment affect us if we already offer employees a pension scheme?
- Does pension auto-enrolment apply to all employees?
- Does pension auto-enrolment cover people like temporary workers and freelances?
- What auto-enrolement pension scheme providers are there and which should I choose?
- How do pension auto-enrolment opt-outs work?
- Can an employee who has opted out of pension auto-enrolment change their mind and opt in again?
- What are my pension auto-enrolment obligations for new employees?
- What auto-enrolment pension advice can I give my employees?
- Can I encourage my employees to opt out of pension auto-enrolment so that I do not have to operate a pension scheme?
- How much do we have to contribute to an auto-enrolment pension scheme?
1. Does pension auto-enrolment apply to my business?
When auto-enrolment was first introduced, each employer had to find a ‘staging date’ for complying with the new rules. But auto-enrolment now applies to all employers in the UK. Your auto-enrolment responsibilities start as soon as you take on your first employee.
You should ensure that you understand what you need to do well in advance of employing someone, as setting up an auto-enrolment pension scheme can be complex and time-consuming.
2. What must I do if I'm late in starting the auto-enrolment pension scheme or making contributions?
It depends how late you are.
- If less than six weeks after you should have started the scheme, you can make a postponement by up to three months. In this case you do not need to backdate contributions.
- If more than six weeks late, you must calculate and pay the backdated contributions. Staff should pay their own backdated contributions. However, if the Pension Regulator issues you with an enforcement action, they may require the business to pay the staff contributions.
3. Does auto-enrolment affect us if we already offer employees a pension scheme?
Yes. You need to check that your scheme meets the requirements of auto-enrolment: for example, in terms of which employees can be members and the size of contribution you make. You also need to make sure you have the right systems to handle automatically enrolling your employees.
4. Does pension auto-enrolment apply to all employees?
Auto-enrolment applies differently depending on how old the person is and how much they earn.
- Employees aged between 22 and state pension age who earn at least £10,000 a year are 'eligible jobholders'. You must auto-enrol them (but giving them the option to opt out) and must make contributions.
- Employees aged between 16 and 74 who earn at least £6,240, but who are either the wrong age or earn too little to be 'eligible jobholders', are 'non-eligible jobholders'. They do not have to be auto-enrolled but have the right to opt in. If they opt in, you have to make contributions.
- Employees aged between 16 and 74 who earn less than £6,240 also have the right to join a pension scheme provided by you. You are not required to contribute.
5. Does pension auto-enrolment cover people like temporary workers and freelances?
Auto-enrolment applies to all employees. It also applies to any worker who has to perform work personally and is not doing this as part of their own business.
Often, if you use agency workers, the agency will be responsible for paying the workers - and the agency will also be responsible in terms of auto-enrolment. But if you take on a temporary worker directly, or are responsible for paying an agency worker, then you must also deal with auto-enrolment.
Self-employed freelances will not normally be covered by auto-enrolment. The rules are similar to the rules which determine whether someone counts as genuinely self-employed.
If in doubt, you should make sure you check the worker's employment status and if necessary, take legal advice.
6. What auto-enrolment pension scheme providers are there and which should I choose?
The NEST scheme was set up by the government when auto-enrolment was introduced. Alternatively, you can choose a pension scheme offered by a private provider.
An independent financial adviser can help you decide which scheme is best for your business. Amongst other things, you will want to consider what the costs of the scheme are and how easy it is to use.
7. How do pension auto-enrolment opt-outs work?
Eligible jobholders - aged between 22 and state pension age and earning at least £10,000 a year must be auto-enrolled in the pension scheme. At the same time, you must provide a written explanation of what this means and their right to opt out.
The employee then has a month to opt-out. If they do, any contributions that have already been made by the employer or deducted from the employee's pay are refunded.
If an employee decides that they want to leave the pension scheme after the end of the opt-out period, they do this under the normal rules of the scheme.
If an employee opts out or leaves a scheme, the employee can make their own savings and pension arrangements (or choose not to save at all). You do not automatically have to make any contribution (unless agreed otherwise in the employment contract).
8. Can an employee who has opted out of pension auto-enrolment change their mind and opt in again?
Yes, an employee can apply to re-enrol in the pension scheme. They can only do this once every 12 months.
Three years after an employee opts out, you must automatically re-enrol them. Again, you give them the opportunity to opt out if they wish.
9. What are my pension auto-enrolment obligations for new employees?
When you take on a new employee, you need to assess what their status is in terms of auto-enrolment - depending on their age and how much they are paid (see 4). If the employee is an 'eligible worker' you would normally need to auto-enrol them in the scheme.
You can choose to postpone automatic enrolment for up to three months. For example, you might want to do this if you are employing a temporary worker. However, you must also give the employee a postponement notice telling them that auto-enrolment has been postponed and explaining their rights.
10. What auto-enrolment pension advice can I give my employees?
You should give your employees general information about your pension scheme. For example, you might pass on information from the scheme provider or let them know about other sources of information.
You should be careful not to give advice or encourage an employee to make a particular decision, as you are not qualified to give financial advice. You can offer employees up to £500-worth of independent financial advice on pensions as a tax free benefit.
11. Can I encourage my employees to opt out of pension auto-enrolment so that I do not have to operate a pension scheme?
No. You must not do anything to deter your employees from auto-enrolling: for example, offering higher pay to employees who opt out, or discriminating against employees who do not opt out. You could face substantial fines or even criminal action.
12. How much do we have to contribute to an auto-enrolment pension scheme?
The minimum contribution that the employer must make is 3% of the employee's qualifying earnings between £6,240 and £50,000. The total contribution made by employer and employee must be at least 8%.