Auto-enrolment was introduced to encourage more people to save for retirement by automatically enrolling eligible employees into a workplace pension scheme. It places certain legal responsibilities on employers while making it easier for employees to start building their pension savings. Both employers and employees contribute towards the pension, helping workers prepare financially for retirement.
For small businesses, understanding the auto-enrolment rules is essential to remain compliant and avoid potential penalties. This guide explains who qualifies for auto-enrolment, the minimum contribution requirements, and what employers need to know.
Minimum employer contributions (as proposed by DWP for the 2017–2018 tax year)
Employers are required to make minimum pension contributions for eligible employees based on their qualifying earnings. Qualifying earnings include a portion of an employee’s salary, wages, bonuses, overtime, commission, and certain statutory payments that fall within the government-set earnings thresholds.
For the 2017–2018 tax year, employees were automatically enrolled into a workplace pension if they:
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Were aged 22 or over, but below the State Pension age.
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Earned £10,000 or more per year.
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Worked in the UK.
Once enrolled, both the employer and the employee were required to make contributions to the workplace pension scheme, helping employees build long-term retirement savings.
However auto-enrolment does not occur in the following situations
Not every employee is automatically enrolled. Depending on their age and annual earnings, some workers have the right to join the pension scheme voluntarily.
For example:
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Employees aged 22 or over but below State Pension age who earn between £5,876 and £10,000 a year can ask to join the workplace pension scheme and are entitled to employer contributions.
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Employees aged 22 or over but below State Pension age who earn up to £5,876 a year may also request to join the scheme, although employers are generally not required to make pension contributions.
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Employees under the age of 22 who earn more than £5,876 can request to join the scheme and are entitled to employer contributions if they qualify.
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Employees who are above State Pension age and earn up to £5,876 a year may request to join the scheme but are generally not entitled to employer pension contributions.
Understanding these different categories helps employers ensure they meet their legal obligations while giving employees access to the pension options available to them.
Minimum pension contributions by employees
During the 2017–2018 tax year, employees were required to contribute a minimum of 1% of qualifying earnings between the lower earnings threshold of £5,876 and the upper limit of £45,000.
The government planned to gradually increase minimum pension contributions over the following years to encourage greater retirement savings. Subject to Parliamentary approval, contribution rates increased in stages:
| Phasing period | Employer minimum contribution | Total minimum contribution |
|---|---|---|
| Before 5 April 2018 | 1% | 2% (including 1% employee contribution) |
| 6 April 2018 to 5 April 2019 | 2% | 5% (including 3% employee contribution) |
| 6 April 2019 onwards | 3% | 8% (including 5% employee contribution) |
Employees who are not automatically enrolled are reassessed regularly once their employer’s workplace pension scheme is operating. If an employee decides to opt out after being enrolled, they must notify both the pension provider and their employer by following the appropriate opt-out process.
Employers are also required to re-enroll eligible employees every three years if they continue to meet the qualifying criteria. This ongoing reassessment ensures eligible workers continue to have the opportunity to save for retirement through a workplace pension scheme.
Source: www.thepensionsregulator.gov.uk
