1. Overview
Under the UK Pensions Act 2008, all employers have legal obligations.
If you have eligible staff, you must automatically enrol them into a workplace pension scheme from the first date of their employment. Generally you will be in this category if you deduct National Insurance and tax from an employee’s wage. Employers must also make contributions towards that scheme on staff’s behalf, declare their compliance with this legislation, and re-enrol any employees who have left the scheme every three years. This applies to most employers and most employees.
If you employ staff who are not eligible, you are still legally obliged to notify the Pensions Regulator about this through an online declaration, and continue to monitor the situation in case staff become eligible.
The aim of this legislation is to encourage staff to save for their retirement so they will have an income over and above the state pension
Your legal duties begin on the day your first employee starts work. You are responsible for ensuring your compliance with this legislation.
Below is an overview of some of your auto-enrolment duties. The Pensions Regulator has more information and full details of your obligations.
2. Determine who is eligible and must be enrolled
The Pensions Regulator has a useful online tool to help you establish:
if you have any eligible staff
what you must do if you don’t have any eligible staff.
Most employees will be eligible for a workplace pension scheme and must be enrolled. As an employer, you must automatically enrol all employees into a pension scheme who are:
aged between 22 and State Pension age (you can check State Pension age using the State Pension age calculator).
working in the UK
earning over £10,000 a year (this figure is reviewed annually and published on the Pensions Regulator website).
You are responsible for adding both new-start eligible employees to your workplace pension scheme, and any staff who become eligible due to a change in their earnings or age. All eligible staff must be enrolled into a pension scheme to begin with (even if they want to opt out of it once they have been enrolled). The UK government provides more advice on actions for employers.
The Pensions Regulator gives advice to employers who don’t currently have eligible staff and emphasises that any business making a false declaration about this may be fined or prosecuted.
3. Select a pension scheme
You must choose a compliant pension provider for your workplace pension scheme. If you don't already have a workplace pension scheme, you will need to set one up before your employees' start date.
Finding a provider
An independent financial adviser or employee benefit consultant will be able to give you advice about choosing a pension provider. If you have an accountant, they may also be able to offer you advice or help you find an adviser. The Money Helper retirement adviser directory can help you find an FCA accredited adviser.
You can also select a pension scheme yourself. The Pensions and Lifetime Savings Association (PLSA) has information about commercial pension providers. When choosing your pension provider, you should ask them to show how their scheme meets the legal requirements for automatic enrolment. You should also check that it meets the needs of both you and your staff.
Setting up your scheme
Once you have selected a pension provider, you will need to agree:
costs and charges for both you and your employees
how tax relief will be handled
what information is needed about your employees
communications from the provider
investment options
how opt outs, opt ins and joiners will be handled
4. Calculate pension contributions
As an employer you must make contributions into your employees’ pension scheme each time you pay them. You should calculate how much you need to contribute for each of your employees, and how much each employee needs to contribute.
Legally, both you and your employees must pay a minimum amount into your scheme each month. The minimum total contribution is set at 8% of an employee’s qualifying earnings, with at least 3% to be contributed by the employer, and 5% by the employee. Employers can opt to pay more than the required 3%.
“Qualifying earnings” will vary by pension scheme, however for most schemes it will be total earnings within a specific range set by the Government. Check the Pensions Regulator site for information on the current range of total earnings. Total earnings include pay types like salary, commission, overtime, etc. Use the Pensions Regulator calculator to help calculate costs .
Contributions must be deducted from your employee’s pay each month and must be paid into your pension scheme by the 22nd (19th if you pay by cheque) day of the next month. You could be fined if your contributions are late or if they do not meet the minimum for each member of staff.
You are responsible for ensuring your payments are correct for each employee, meet the minimum contribution and are on time. For more information on your legal requirements see the Pensions Regulator website.
5. Write to staff
Employers must write to all staff within six weeks of the ‘duties start date’, to detail how the auto-enrolment pension applies to them. This is true of new employees, and existing employees who have just become eligible (e.g. through a salary increase or by turning 22).
It is important that you clearly explain how auto-enrolment works and will apply to them, including:
date you added them to the pension scheme
type of pension scheme and details of the pension provider
details on tax relief
how much you will contribute and how much the employee will need to pay in
how the employee can opt-out and leave the scheme.
Your pension scheme provider may help with this communication, however if not the Pensions Regulator has some useful letter templates that you can use to ensure that staff are fully informed.
6. Declare your compliance
Within five months of your ‘duties start date’ you must submit your declaration of compliance with the Pensions Regulator. This lets the Pensions Regulator know that you have met your legal duties for auto-enrolment.
Even if you have no eligible staff to enrol into a pension scheme, you still have a legal duty to complete your declaration of compliance.
7. Ongoing duties
Once you have set up a workplace pension scheme, you have ongoing duties to manage that scheme effectively.
You must
manage requests from staff to leave or join your pension scheme and keep accurate records of this
monitor staff age and pay each month to check whether staff need to be added to your pension scheme (e.g. by reaching a certain age or by increasing earnings)
ensure minimum contributions are met and contributions are paid on time
check whether staff who have left the scheme need to be re-enrolled
keep records about how you’ve met your legal duties
re-enrol staff and re-declare your compliance every three years.
8. Re-enrolment and re-declaration
Every three years from the date that your first member of staff started work, you must add eligible staff who have left your workplace pension back into the scheme. You will need to determine whether any employees who opted to leave the pension scheme or reduce their contributions, need to be added back into your scheme.
Any employees aged between 22 years and the State Pension age, and who earn above £10,000 per year, must be re-enrolled within six weeks. You must then write to any re-enrolled staff to advise them of their re-enrolment and what this means for them.
You must also complete a re-declaration of compliance on the Pensions Regulator website every three years - even if you have no staff to re-enrol. This must be completed within five months of the three year anniversary.
If you do not re-enrol eligible staff or submit a re-declaration of compliance you could be fined by the Regulator. You are responsible for meeting your legal requirements. The Pensions Regulator has more information on re-enrolment.
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