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An Employer’s Guide to Workplace Pension Rules in the UK

An introduction to your workplace pension

 

Automatic enrolment (auto-enrolment) was introduced in the UK in 2012 to encourage employees to save for retirement by automatically enrolling them into workplace pension schemes. As an employer, you have several important duties under this legislation. Here's a breakdown of the key aspects:

What is Automatic Enrolment, and Who Does It Apply To?

Automatic enrolment is a UK law that requires employers to automatically enroll eligible employees into a workplace pension scheme.

Who Qualifies for Automatic Enrolment?

To be eligible for auto-enrolment, employees must meet the following criteria:

  • Age: Employees aged 22 and above but under the State Pension Age.

  • Earnings: Employees must earn more than £10,000 per year.

What Are My Duties as an Employer Under Auto-Enrolment?

As an employer, your responsibilities include:

  1. Assessing Employee Eligibility: You need to determine whether each employee meets the criteria for automatic enrolment.

  2. Enrolling Eligible Employees: Eligible employees should be enrolled in a workplace pension scheme within the required timescale.

  3. Making Regular Pension Contributions: You must ensure that pension contributions are made to the scheme on behalf of eligible employees.

How Often Do I Need to Contribute to My Employees’ Pensions?

Pension contributions must be made each pay period according to the payroll schedule. For example, if your employees are paid monthly, contributions should be made monthly.

What Are the Minimum Contribution Rates?

The minimum contribution for auto-enrolment is 8% of qualifying earnings. This is split as follows:

  • Employer: 3%

  • Employee: 5%

The contribution rates can vary slightly depending on the scheme, but these are the minimum amounts required by law.

What if an Employee Opts Out?

Employees have the option to opt out of the workplace pension scheme after they’ve been automatically enrolled.

  • Opting Out Period: Employees can opt out within one month of being enrolled.

  • Refund: If the employee opts out within the month, they are entitled to a refund of any contributions made.

  • After One Month: If the employee doesn’t opt out within the month, they will remain in the pension scheme, and no refund is provided.

How Should I Handle New Employees Regarding Auto-Enrolment?

For new employees, you must:

  • Assess Eligibility: Upon hiring, assess whether the employee meets the auto-enrolment criteria (age and earnings).

  • Automatic Enrolment: If they qualify, automatically enroll them into the workplace pension scheme and make contributions.

  • Non-Eligible Employees: If they don’t meet the criteria, you don’t have to enroll them, but they may still request to join the pension scheme.

When Do I Need to Re-Enroll Employees Who Previously Opted Out?

Every three years, employers are required to re-enroll eligible employees who previously opted out of the pension scheme. This is to ensure that employees are given another chance to join the scheme if they are eligible at that time.

What Are the Penalties for Not Complying with Auto-Enrolment Duties?

Failing to comply with auto-enrolment requirements can result in penalties. Penalties for non-compliance include:

  • Fines: Employers can be fined for failing to meet auto-enrolment duties.

  • Escalating Penalties: Penalties increase for continued non-compliance, and employers may face more severe financial consequences.

What Records Must I Keep for Auto-Enrolment Compliance?

To ensure compliance with auto-enrolment duties, you must maintain the following records for at least six years:

  1. Employee Enrolment Records: A record of each employee enrolled into the pension scheme.

  2. Contribution Records: Details of pension contributions made by the employer and employee.

  3. Opt-Out Records: A record of employees who have opted out of the scheme.

Understanding your duties under auto-enrolment is crucial for ensuring compliance with pension regulations in the UK. By enrolling eligible employees, making the required contributions, and maintaining accurate records, you can help your employees save for retirement while avoiding penalties. Always stay up-to-date with the latest regulations, and reach out to Thrive Customer Support if you need any assistance.