Auto Enrolment Pensions (An Employers Guide!)


Since the introduction of the Pensions Act 2008, all UK employers are required to enrol certain employees in an auto enrolment pensions scheme and contribute towards it. This is known as Auto Enrolment.

If your business employs 1 or more workers aged between 22 and the state pension age and earning over £833 per month gross, it is your responsibility to set up a workplace pension scheme which meets the requirements set out in the Pensions Act 2008.

Employees who meet the criteria concerning age, wage etc must be automatically enrolled in the pension. The business is then required to contribute towards the retirement of all employees enrolled in the pension scheme.

If your employees do not fit the criteria for auto enrolment, it’s likely you will still have to meet certain duties towards them. For example, employees who do not automatically qualify but who meet other criteria for age and earnings also have rights with regards to joining or opting in to a pensions scheme. Take advice on your specific circumstances to ensure you are meeting your duties.

Auto enrolment pensions: Employer duties and responsibilities

If you hired after 1 October 2017, you will need to provide an auto enrolment pension scheme for any employees who are aged between 22 and the state pension age and earn over £833 per month (£192 per week).

Business owners looking to take on new employees who fit the auto enrolment pension criteria will need to set up an auto enrolment pension scheme in advance. Similarly, anyone looking to set up a new business will need to set up an auto enrolment pensions scheme for qualifying employees prior to hiring.

Employers who hired employees prior to 1st April 2017 are subject to a staging date, a deadline by which time you must have your employees enrolled and be contributing to an auto enrolment pension. You should have been notified of your staging date via a letter from the pensions regulator. If you have not received this letter it is important that you contact the pensions regulator immediately.

If you hired on or after 2 April 2017 and before 30 September 2017 and have not yet set up an auto enrolment scheme, you will need to take steps to set up the scheme and make back payments in order to rectify the mistake. What you will be required to do, and whether you will be fined, will depend on the length by which you have missed your deadline among other individual circumstances.

Auto enrolment pensions: Setting up an auto enrolment scheme

As the employer, you must either handle the auto enrolment scheme in person or appoint a professional adviser to assist you.

You have to contact the pensions regulator and inform them who to contact regarding the setting up and management of the pension.

Once you have determined who will manage the auto enrolment pension, the first step is to determine when you need to have your auto enrolment pension in place.

Approximately 6 months before your staging date or the date in which you will begin to employ workers who qualify, you will need to ensure you have a pensions scheme which is set up for auto enrolment. If your staging date has passed you should contact the pension regulator to determine whether you need to pay fines and when how far back you need to backdate contributions.

Businesses with pre-existing pensions scheme may find their system is capable of running auto enrolment. Business owners should check with their scheme providers to see if it is possible to transfer or alter the scheme so that it meets the auto enrolment requirements.

New businesses or businesses with schemes which cannot be used for auto enrolment pensions will need to find a scheme which can. One option is to utilise the government built National Employment Savings TRUST (NEST) scheme, created for employers needing to set up auto enrolment. However, there are a number of schemes available and employers should look at all the options available to find one most suitable for their business. Which scheme you choose is an important decision as both you and your employees will be contributing to it in order to support their retirement.

Having set up a pension scheme compatible with auto enrolment, employers must identify which employees to enter into the pension scheme. Employers must also establish how both parties will pay into the pension contribution, with automated payroll systems a preferred method.

A legal or financial adviser would be able to assist you with selecting employees who qualify for auto enrolment, calculating the correct contributions, and setting up regular payment.

Ensure that you keep a clear record of who is being added into the scheme and under what contributions as this information will be needed for your declaration of compliance and future reports.

Auto enrolment pensions: Communicating to employees

It is your responsibility as the employer to communicate the details of auto enrolment and alternative pension options to all your employees.

Within 6 weeks of your staging date you must write to each individual staff member explaining how automatic enrolment applies to their employment and the details of the chosen pension scheme.

A legal adviser would be able to support you in drafting the written communicating and answering any questions employees may have.

Financing auto nnrolment schemes/work out and implement payment

By your staging date, you must have identified how much each member of staff earns and how old they are.

Under the Pensions Act 2008, the law requires minimum contributions of automatic enrolment pensions to increase on set dates over the next few years. How much the employer and employees’ contributions increase by are also determined by which method, or set, is used to calculate the pension contributions. There are 3 sets to choose from and which set you or your chosen scheme use will affect how much you and your employees pay in. To check which set applies to your pension scheme, either contact the provider or your legal adviser.

The first set calculates contributions based on the employees’ gross earnings, excluding extras such as overtime, bonuses, commission, relocation allowance, and shift pay.
For this set, the current minimum contribution for auto enrolment pensions is 3%, with at least 2% contributed by the employer and a minimum of 1% contributed by the employee.
As of the 6th of April 2018, the minimum total contribution is 6%, at least 3% of which must come from the employer and at least 3% from the employee.

A final increase will take place as of the 6th of April 2019, when a minimum contribution of 9% must be made. Of the 9%, 4% must come from the employer and 5% from the employee.

The second set calculates the contribution based on 85% of total gross earnings. This set also excludes the extras such as staff bonus outlined in set one. When the gross earnings of all the staff in the scheme are added together they must come to at least 85% of their total earnings.

The current minimum contribution for this set is 2%, with at least 1% contributed by the employer and a minimum of 1% contributed by the employee.

As of the 6th of April 2018, the minimum total contribution is 5%, at least 2% of which must come from the employer and at least 3% from the employee.

The final increase on the 6th of April 2019, will require a minimum contribution of 8%. Of the 8% 3% must come from the employer and 5% from the employee.

The final set calculates the contribution amounts based on the sum of all the staff earnings, including elements such as staff bonuses etc.

The current minimum contribution is 2%, with at least 1% contributed by the employer and a minimum of 1% contributed by the employee.

As of the 6th of April 2018, the minimum total contribution is 5%, at least 2% of which must come from the employer and at least 3% from the employee.

A final increase will take place as of the 6th of April 2019, when a minimum contribution of 7% must be made. Of the 7%, 3% must come from the employer and 4% from the employee.

After April 2019, the pensions regulator will notify you of any changes to the minimum amount which must be contributed.

There is a tool on the government website which can help you determine which set applies to your business. In addition to the above sets, there are some pension schemes which do not require increases in their minimum contributions. Defined benefit schemes, also known as “Career Average Schemes” or “Final Salary Schemes”, generally apply to public sector employers and large employers. To check if this applies to your business you should contact the scheme provider, ask a legal advisor, or refer to the original scheme documents.

In the case of a hybrid scheme, combining defined benefits and minimum contributions, it will be necessary to increase the minimum contributions.

It is possible that your chosen pension scheme requires higher contributions from you or the employees. The details regarding scheme rules and costs can be found in the documents sent by the scheme when you set it up. You can also contact the pension provider and ask for clarification.

Alternatively, the employer or employee may decide to pay in more than the government minimum. Employers may do this to provide a more attractive pensions package, increasing job appeal to future employees and improving staff loyalty. If an employer pays more than their minimum, the employee only needs to make up the rest of the minimum amount, so could pay in less. However, employees may wish to contribute more in order to enhance their retirement funds.

Reporting and ongoing duties:

Once you have set up and begun making payments into your auto enrolment scheme, you must complete a declaration of compliance. The deadline for completing your declaration of compliance is 5 months after your staging date or, if you do not have a staging date, within 5 months of starting your pension duties. The form is available online on the pensions regulator website and must be completed by all business owners even if they have no employees who meet the auto enrolment criteria. Failure to correctly fill out and complete the declaration can lead to fines.

Having set up and declared an auto enrolment scheme, it is the business owners’ responsibility to make regular monthly payments into the pension scheme to meet at least the minimum contribution. Employers are also responsible for facilitating the employees’ monthly contribution either via automated payroll or a manual system.

Employers must keep their employees informed as to any changes in the pension scheme and update them as to how their pension is progressing and their options. New Employees must be enrolled as must any employees who come to meet the criteria. The scheme must also be updated whenever an employee leaves the company.

Employers also have a responsibility to keep up to date records of pension payments, report to the pensions regulator whenever there is a breach of the law, late payment, or any event affecting the pensions scheme, and complete official scheme returns (reports) when required.

Why seek legal advice?

Failure to correctly set up, manage, and report on your businesses auto enrolment pension can have legal repercussions including fines and court cases. Seeking legal advice, both in setting up and managing your auto enrolment pension, is the best way to ensure that you continue to meet the legal requirements and provide your employees with a secure financial future.

If you are concerned that you may not have complied with pension law, need help to understand your options regarding start dates and how it will affect your business, have workers who do not fit the auto enrolment criteria, or are unsure about how and when to report to the regulator, you should consult with a legal advisor.


Auto Enrolment Pensions (An Employers Guide!) 1

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.

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