What is auto enrolment?
Whether your business is already contributing to a pension scheme, or you think it may need to, learn more about auto enrolment here
Auto enrolment is a UK government scheme that means eligible workers are automatically enrolled into a pension scheme, which is provided by employers.
While you may have heard of auto enrolment, you’re likely to have some questions: what is auto enrolment, exactly? What are some of the key dates you need to know about? How do the rules and regulations impact you, as a small business owner? We’ll answer these queries, and provide additional details about auto enrolment.
In this article, we’ll cover:
- What is auto enrolment?
- What are the benefits for employers?
- Why was auto enrolment introduced?
- What does auto enrolment mean for your business?
- Auto enrolment and re-enrolment: What's the difference?
- What is the Declaration of Compliance?
- Auto enrolment staging date
- Auto enrolment rules and regulations
You can go straight to the section you want to learn about the most by clicking on the links above. Or, for a comprehensive guide to auto enrolment, read the article in full.
Alternatively, if you’re ready to compare quotes for auto enrolment straight away, simply complete the form at the top of the page.
1. What is auto enrolment?
Pension auto enrolment is a workplace pension that eligible employees are automatically enrolled into. Employers must provide and contribute to a pension for those employees.
Employees pay into the pension with deductions from their salary, pre-tax. The amount varies depending on how much an employee earns – the higher the salary, the more they will have to contribute to their pension fund.
As eligible employees are automatically enrolled into a scheme, it means they have to actively opt out if they don’t wish to contribute.
Employers have to match employees’ contributions, with the government setting the minimum amount.
From 6 April 2019, the minimum employer contributions will be 3% of qualifying earnings.
What are the benefits for employers?
While the benefit for employees is to save for their own retirement, there are also a number of reasons why businesses need auto enrolment too.
Firstly, it offers a way of standardising the pension system, which can often be complex. An auto enrolment structure makes it easier to understand who does and doesn’t qualify for a pension.
Plus, since all employers must offer a pension to eligible employees, it removes any uncertainty about providing a pension in the first place.
Also, the fact that employers can offer to contribute above the minimum amount can itself be a benefit. It’s a way to make your company stand out when recruiting, for example.
Why was auto enrolment introduced?
Pension auto enrolment was introduced to encourage more people to save for their own retirement.
Auto enrolment offers an additional form of pension savings, which employees can pay into on top of another form of savings account or plan for retirement.
As the pension schemes offered by employers have to meet certain requirements around how the pension is paid and invested, it offers clarity, and a standard way of knowing what type of pension scheme employers have to offer.
The conditions of auto enrolment mean that employers are likely to more clearly understand what information they have to share – such as the type of scheme, and how to contact the fund provider – as well as when to share it.
Plus, it gives your employees greater control over their pension and more insight into what they can expect to have saved by the time they reach retirement age.
What does auto enrolment mean for your business?
As part of these changes to workplace pensions under the Pensions Act of 2008, there are a number of steps you will have to take to ensure that your business is auto-enrolment ready:
- Once you’ve found out your staging date (see below), you will need to set up a workplace pension scheme, or review your existing pension contributions.
- You must communicate these new pension rules with your employees in a written letter. You can find template auto-enrolment letters here.
- Automatically enrol all of your eligible workers.
- Register your business with The Pensions Regulator, and keep a record of this.
- Contribute to your employees’ pension pots on a regular basis.
- Facilitate any opt-out requests, and arrange refunds.
- Maintain up-to-date and accurate records.
- You’ll need to constantly review your employees, including any new starters.
- Complete your declaration of compliance with The Pensions Regulator.
If you don’t set up a workplace pension scheme for your employees within the timelines, then you could face fines and penalties. Fines also apply if you fail to complete your ongoing auto enrolment duties.
2. Auto enrolment staging date
An auto enrolment staging date is when your duties as an employer (in terms of auto enrolment) first come into effect. This is the date from which you must comply with your auto enrolment pension responsibilities as an employer.
This is based on the total number of people in your PAYE (pay as you earn) scheme. You can find out your business’ staging date based on your PAYE reference.
The earliest staging dates began in 2012 and ran up until 2018, beginning with the largest employers through to smaller ones.
It’s possible to make the staging date earlier than the one you have been assigned, but it’s usually not possible to set it to a later date. Some small employers may be able to delay the staging date, but only if they meet certain requirements regarding the number of people on their PAYE payroll and the type of PAYE scheme type that they are part of.
You should be able to locate your PAYE reference on any payroll-related documents from HMRC. If you’re not sure, check with your accountant or finance team, or contact HMRC directly.
The Pensions Regulator has a handy tool that can help you work out what your business needs to do, and by which date.
It also has a tool specifically designed for working out re-enrolment dates.
If you became an employer for the first time from 1 October 2017, then your auto enrolment responsibilities begin on the day that your first employee starts work – this is known as a duties start date.
If you’ve missed your duties start date, then it’s still possible to comply with your auto enrolment responsibilities – your company’s pension provider should be able to advise on this.
Auto enrolment process checklist
- Know your staging date
- Set up a pension scheme (or check your existing one)
- Assess and enrol employees
- Register with The Pensions Regulator
- Communicate changes with employees in writing
- Regularly pay into employees’ pension, and keep up-to-date records
- Inform Pensions Regulator that you have met your auto-enrolment duties
3. Auto enrolment rules and regulations
The Pensions Act 2008 is the legislation that governs pensions in the UK. It states that every employer must provide a pension scheme for eligible employees to be automatically enrolled into. Plus, employers must provide minimum contributions, which are set by the government.
As mentioned above, from 6 April 2019, employer minimum contributions will be 3%.
Which employees are eligible for auto enrolment?
As an employer, you’ll have to make contributions for any eligible employees that:
- Earn £10,000 per year or more
- Are aged 22 to State Pension age
- Work in the UK
You may also have to contribute for some employees who are in the same age bracket, but earn between £6,032 and £10,000 per year, if they ask to be enrolled into the pension scheme.
Similarly, employees outside of the age range who do meet the earnings condition can also ask to enrol, and are entitled to receive employer contributions.
Employers don’t have to contribute for those employees who earn under £6,032 per year (even if they’re in the age range). Nor do employers have to contribute for those outside of the age range and also under the earnings per year threshold.
Qualifying earnings are set by the government, and are a section of an employee’s pay on a per year tax basis e.g. 2018/19.
Employees have one month to opt out of the pension scheme – starting from the day they’re automatically enrolled into a scheme.
The rules say that employers have to set up a pension scheme into which your eligible employees can be automatically enrolled, and that you make contributions into the scheme as well, based upon your employees’ qualifying earnings.
Auto enrolment and re-enrolment: What’s the difference?
Auto enrolment is not a one-off task – your responsibilities don’t end once you’ve met your duties start date.
You’ll need to keep track of your employees’ pay to note and act upon any changes, such as employees’ age and earnings.
For example, a 21-year-old employee who starts working for you and earns more than £10,000 per year wouldn’t be eligible initially based on their age, but would be when they turn 22 (providing their earnings are the same too).
Also, monitor any requests to become a part of, or leave, the scheme. It’s important to keep records too – these should be kept for six years to show how you’ve met your legal duties as an employer, e.g. who the pension was paid to, and how. Records for requests to leave should be kept for four years.
Re-enrolment takes place every three years, and is done so that any team members who have left the pension scheme during the previous period of time can be re-entered.
Remember that as an employer, the responsibility for auto enrolment is with you. Penalties for not complying include notices and fines.
What is the Declaration of Compliance?
This is an online form that lets The Pensions Regulator know how your employer duties for auto and re-enrolment have been met. This must be completed no later than five calendar months from your duties start date or staging date.
The information you need to provide includes your PAYE scheme reference, contact details, Companies House number, and the details of your chosen workplace pension scheme provider.
The Declaration of Compliance is a form that all employers who have reached their staging date must submit to The Pensions Regulator to explain how they have met their employer automatic enrolment duties.
There is a completion deadline five months from your staging date, and failure to adhere to this could result in fines for your business. The declaration is a secure, online service accessed through the Government Gateway.
While it is your legal responsibility as an employer to ensure you have completed the form accurately and on time, you are also able to authorise someone else to complete the declaration on your behalf – this could be an accountant, a financial adviser, or a member of staff.
What information do you need to complete the declaration?
Firstly, you’ll need your letter code and PAYE reference to access the Declaration of Compliance online service.
Letter code: Your letter code is a 10-digit reference beginning with a ‘1’ that’s unique to every employer. You can find it written on all correspondence from The Pensions Regulator.
If you don’t know it, or have never received it, you should contact firstname.lastname@example.org providing your employer name, PAYE scheme reference(s), employer address, and your contact details (telephone number, email address, job role).
PAYE references: Your PAYE reference can be found on the letter you received from The Pensions Regulator regarding auto enrolment, as well as on the letter from HMRC when you first registered as an employer. You can also find it through your payroll software.
Alongside the PAYE reference, you’ll also need to provide the following:
- The exact number of staff you were employing on your staging date
- How many of those workers have been enrolled
- How many workers were already in a work pension scheme
- Details about the pension scheme (or schemes) you’re using for auto-enrolment
- The employer pension scheme reference (EPSR) or pension scheme registry number (PSR number)
If you’re worried you don’t have everything required, you can use the Declaration of Compliance checklist on The Pensions Regulator’s website.
When do you need to comply?
As mentioned above, the deadline for completing the Declaration of Compliance is five months from your staging date or duties start date. If your declaration deadline falls on a Saturday, Sunday or public holiday, you can provide the declaration on the next working day.
In terms of physically filling in the form, it’s highly advisable that you begin this process well before the staging date. Although you won’t be able to submit it before the staging date itself (as you’ll need to account for all staff employed on this date), you run the risk of being fined if you leave everything to the last day and fail to complete the process on time.
N.B. If you have delayed putting any of your workers into a pension scheme, don’t submit their declaration until after the postponement period has ended, as this could mean there’s very little time between the end of the postponement period and the declaration deadline.
Fill in the details as you get them, and complete everything in advance except for the information about your workforce.
Where to submit the declaration
The declaration is complete once you submit all the required information online to The Pensions Regulator via the Government Gateway.
If you already have a Government Gateway user ID, you will be able to log in and select automatic enrolment.
If you don’t already have a Government Gateway user ID, you’ll need to create one. Once you’ve done this, you’ll see a message saying that you’ve ‘enrolled’. This means that you have registered with the Government Gateway, and you can now start the process of the Declaration of Compliance.
How often do I complete the declaration?
Every three years, you will need to put certain staff back into a pension. Once you do this, you will need to submit a re-Declaration of Compliance.
Your re-declaration will need to be completed within five calendar months of the third anniversary of your staging date. You will then need to do this again in another three years’ time.
What if you fail to submit the declaration?
Failure to submit the form could result in you being fined.
How to set up auto enrolment
Here is a quick summary guide to help you understand the process of setting up auto enrolment as an employer.
- Understand what auto enrolment is, and if it’s applicable to your business
- Find out your company’s staging date or duties start date
- Choose a pension provider
- Set up your employer contributions
- Review employees’ pay for any changes relevant to auto enrolment contributions
- Keep records
Read our guide to the best pension providers to help you find a pension fund that’s right for your business.
What are the next steps?
From reading this article, you’ve learned more about auto enrolment, including what it is, why it’s been introduced, and why businesses need it. We’ve covered the key information you need to know, such as staging dates, as well as the rules and regulations.
Now, read our article on the best pension providers for more detailed information about some of the options available to your business.
Another option is to compare quotes for auto enrolment. For information related to your business’ needs specifically, fill in the form at the top of the page.