Recap resource: simple guide to automatic enrolment

Introduced in 2012, automatic enrolment is a crucial aspect of pension-related legislation that impacts both employers and employees.

However, it's been over a decade since the legislation came into action.

Since then, countless new professionals have joined the industry who weren't around for the change and could do with fully understanding what’s entailed!

Plus, a handy recap wouldn’t go amiss for even seasoned payroll professionals.

Well, we’re here to help! Here is a digestible summary of automatic enrolment, covering the various areas you need to be aware of.

What exactly is automatic enrolment?

Automatic enrolment, also known as auto enrolment, is a Government initiative that requires employers to automatically enrol eligible employees into a workplace pension scheme.

The goal of automatic enrolment is to encourage more people to save for retirement and help them build a secure financial future.

Although the Government initiated and regulates auto enrolment, it does not directly provide a pension scheme for employers to use.

It's the employer's responsibility to offer a qualifying workplace pension scheme for its employees.

As such, employers have the flexibility to choose from various pension providers, enabling a diverse range of pension options for employees, tailored to meet different structures and needs.

Visit Gov.co.uk to learn more.

Who does automatic enrolment apply to?

For employees to be eligible for automatic enrolment pensions, they must meet the following four criteria.

• Earnings: earns over £10,000 in a tax year (£833 Per Months/£192 Per Week)
• Age: aged between 22 and state pension age (however, anyone from the age of 16 can opt-in)
• UK worker: ordinarily works in the UK
• Existing scheme: not already in a qualifying pension scheme in the company

Once an employee is enrolled, they stay on the scheme unless they've actively requested to opt out.

Note: once an employee is part of a pension scheme via automatic enrolment, even if they drop below the earnings threshold, they remain on the scheme.

Can employees who don't meet the criteria join?

Yes, employees who don't meet the previously mentioned four criteria still have the right to opt in and join your pension scheme.

These employees can request to manually enrol in your pension scheme, which you can’t under any circumstances refuse.

What must employers do?

The responsibility sits purely on the employer to organise the pension.

Workers aren't required to do anything as it should happen automatically, hence the term automatic enrolment.

Once an employee is enrolled, you must send them a letter:

• Informing them of their pension
• Documenting when the first deduction is being made
• What the deduction will be
• That they have the right to opt-out
• Who to contact should they wish to opt-out

This letter (including the postponement letter which we cover in more detail below) should be sent within six weeks, starting from the pay reference period.

Note: ensure you have the correct employee contact details as the pension provider will need to also send your staff documentation.

Postponing enrolment 

Even if an employee meets the criteria for automatic enrolment, you can postpone the process for up to three months.

After the desired deferral date, the employee should be reassessed to see if they still meet the qualifying criteria.

If they do, they become enrolled from there.

However, if the employee no longer meets the criteria, automatic enrolment can be postponed again for up to three months.

This deferral can continue to take place indefinitely until the worker meets the criteria.

The option to postpone auto-enrolment is designed for those with seasonal work or who have specific busy periods.

For example, say the business relies heavily on tourism. Across a few months, an employee may reach the threshold for automatic enrolment due to all the extra work. The option of postponing comes in handy so staff who typically wouldn’t make the threshold aren’t pushed into a pension scheme due to specific work periods.

Be aware, when postponing auto enrolment, the employee must be informed via letter, and should they wish to opt in, you must accept. 

When writing to an employee about postponing their automatic enrolment, you must tell them the postponement timeframe and their rights under the legislation.

Note: you can't postpone auto enrolment if you don't write to employees within the required time scale (six weeks, starting from the pay reference period).

Should we offer financial advice?

It is the employer's job to facilitate automatic enrolment.

Once organised, the responsibility falls back on the employee to decide whether they want to opt-out or stay in.

We frequently hear from businesses, asking whether they should guide employees and offer financial advice.

Simply put, no.

Unless you are a qualified independent financial advisor (IFA), under no circumstances should you be offering staff financial advice.

While you may have the best intentions, you don't know each worker's circumstances and can't offer appropriate advice.

There is also a chance that the advice you offer could be taken in the wrong way and they go to the pension regulator, resulting in you receiving a fine.

Mini masterclass: automatic enrolment

Looking to brush up on your knowledge further?

Check out my exclusive mini masterclass which gives a refresher on automatic enrolment and what it means for your business.