How do auto-enrolment pensions work?

28/02/2023

You need to make sure you are aware of all your obligations as an employer, including setting up your employees’ pensions.

You must offer a workplace pension to your employees if they are eligible for one, as well as making the necessary contributions.

Eligible employees are those who are aged between 22 and the state pension age, earn at least £10,000 per year, and work in the UK.

What is auto-enrolment?

Auto-enrolment is a UK Government initiative that requires employers to automatically enrol eligible workers into a workplace pension scheme.

With this in mind, your employees can save for their retirement by paying a proportion of their wages into their pension, which is topped up by you (the employer) and the Government.

The Government will usually contribute in the form of tax relief if the employer pays Income Tax and contributes to a pension.

What are the employer’s responsibilities?

As the employer, you must set up and contribute to the pension scheme. You must also automatically enrol eligible employees and keep records of those who have opted out.

You need to also provide employees with information about the pension scheme and their rights.

In terms of contributions, you should pay a minimum percentage of your employee’s earnings to the pension scheme. The current minimum employer contribution is 3% of an employee’s qualifying earnings.

What are the employee’s responsibilities?

Employees who are eligible for auto-enrolment have the right to opt out of the pension scheme if they wish.

The amount that the employee pays will depend on the type of pension they have, but they can choose to make additional contributions if they want to save more for their retirement.

Are there any exceptions?

There are some circumstances where you don’t need to automatically enrol employees in a workplace pension.

If an employee has already opted out of a workplace pension or is already enrolled in a qualifying scheme, they may not need to be automatically enrolled.

This also applies if the employee has already handed in their notice or if they are a member of a limited liability partnership and are not classified as an employee.

However, it’s important to remember that even if automatic enrolment doesn’t apply, employees may still be eligible to opt-in to the pension scheme if they meet certain criteria.

Find out more about this here.

As an employer, it’s crucial to stay informed about the latest regulations and ensure you remain compliant.

Need more guidance on complying with auto-enrolment pension regulations? Get in touch.