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What is auto-enrolment

The government's workplace pension reforms require employers to automatically include certain employees in a qualifying pension scheme within a strict timescale without the employee having to:

• provide any information, or
• make any choices

This is known as auto-enrolment (or automatic enrolment to give its full title). The auto-enrolment rules mean, for example, that these employees can't be required to:

• apply to join the pension scheme, or
• choose their contribution level, or
• decide how their contributions are invested

Employees can opt-out of the scheme after being auto-enrolled but, if they do, they'll periodically go through an automatic re-enrolment process.

Assessing the workforce for auto-enrolment

An employer's pension obligations are different depending on which of three distinct categories an employee falls into - eligible jobholder, non-eligible jobholder or worker. To assess an employee's status, the employer has to check:

• if they're a UK worker and
• whether their earnings received in the relevant pay reference period are above either the earnings trigger or the qualifying earnings threshold

Eligible jobholders

This category of workers must be auto-enrolled into a qualifying pension scheme within a strict timescale - unless they're already a member of one. An eligible jobholder is a worker who:

• is aged between 22 and State Pension age and
• works (or ordinarily works) in the United Kingdom and
• has earnings of more than the earnings trigger in the relevant pay reference period

2024/25 tax year - the annual earnings trigger is £10,000. The trigger is reduced for shorter reference periods:

But, since 1 April 2015, there are situations where auto-enrolment is optional. Employers don't have to auto-enrol eligible jobholders who have:

• enhanced, primary, individual (IP2014 or IP2016) or fixed (FP2012, FP2014 or FP2016) protection, or
• been given notice of their dismissal by the employer, or
• given the employer notice of their resignation or retirement, or
• taken action to end their active membership of a qualifying pension scheme less than 12 months before the enrolment date. This exception applies regardless of what category of worker they were when membership ended, or whether it ended before the employer's staging date, or 
• received a winding-up lump sum within the last 12 months whilst in employment with the employer, subsequently left that employment but then was re-employed by the employer

Non-eligible jobholders

Sometimes referred to as ‘other jobholders’, non-eligible jobholders don't have to be auto-enrolled into a qualifying pension scheme - unless they opt-in to the process. Employers must tell these employees about their right to opt-in. A jobholder is a worker:

• aged at least 16 but under 75 and
• works (or ordinarily works) in the United Kingdom and
• with qualifying earnings payable by the employer in the relevant pay reference period
   
  2024/25 tax year - the qualifying earnings band is earnings from £6,240 to £50,270 for pay reference periods of a year. This is reduced for shorter reference periods:

Entitled workers

These are employees who would be jobholders, if they had qualifying earnings. They can tell their employer to include them in a registered pension scheme - but this doesn't have to be a qualifying pension scheme and the employer doesn't have to contribute to it. Employers have to tell these employees about their right to join a pension scheme.

A person is a worker if they've got a contract of employment (or any other contract to do work or perform services personally) with the employer. It doesn't matter whether the contract is expressed or implied, written or verbal. It also doesn't matter whether the employee is on a temporary or fixed-term contract, or if they work full-time or part-time.

Special cases

• Agency workers who don't have a contract of employment are treated as employees of whoever pays (or is responsible for paying) them for their work. This could be the agency or the company the work is done for.
• Company directors aren't workers unless:
  
  
  • they're employed by the company under a contract of employment and
  • there's at least one other person who is employed by the company under a contract of employment

So one person companies are always exempt from the government's workplace pension reforms. Since April 2016 employers can exercise discretion on whether company directors and genuine partners in Limited Liability Partnerships should be auto-enrolled as workers. 

People with more than one employment: If someone has more than one job, these rules apply separately to each employment.

Auto-enrolment requirements – employer’s responsibility

When employees have to be auto-enrolled

Employers must auto-enrol any eligible jobholders into a qualifying pension scheme within 6 weeks of their auto-enrolment date (unless they're already members of one). 

Despite this enrolment window, the employee's scheme membership must actually be backdated to the auto-enrolment date itself.

The auto-enrolment date is the latest of:

• the employer's staging date
• the date an employee first becomes an eligible jobholder (for example, on joining, reaching age 22 or crossing the earnings trigger in a pay reference period)
• the end of any waiting period

But jobholders can normally opt-in earlier.

Waiting periods

Employers can choose to operate a waiting period of up to three months before auto-enrolling their employees, by giving them a deferral notice within six weeks of the start of the deferral period. There are two ways of doing this:

• delaying the assessment of an employee's status for up to three months and/or
• putting back an employee's auto-enrolment for up to three months. These employees must be assessed again at the end of this waiting period and can only be auto-enrolled if they are still an eligible jobholder at that point

Different waiting periods can be used for different employees (or groups of employees) - for example, to align enrolment with payroll dates to simplify admin or stagger the enrolment of a large workforce.

More information: The Pensions Regulator has produced ‘Automatic Enrolment' guidance which gives more information.

Opting-out and voluntary opt-ins

Opting-out

Anyone can opt-out of a pension scheme they've been auto-enrolled (or automatically re-enrolled) into by giving their employer a valid opt-out notice on time (see below). But, if they do, their employer doesn't have to let them opt-in again for up to a year if they change their mind.

Obtaining an opt-out notice: The employer must tell the employee about their right to opt-out, and how to get an opt-out form, as part of their enrolment information.

To help stop employers from encouraging employees to opt-out to keep costs down, only the scheme administrator can supply opt-out forms to members. An employer can only supply an opt-out form to an employee where it acts as the scheme administrator under an occupational pension scheme.

Timescales for giving an opt-out notice: An employee who wants to opt-out must give their employer an opt-out notice within one month of the later of the dates on which they:

• became an active member of the pension scheme, or
• were told that they had been, or would be, auto-enrolled (or re-enrolled) into the pension scheme

It's not possible to opt-out in advance of being auto-enrolled (or re-enrolled) - for example, during any waiting period. The opt-out right is a right to opt-out of scheme membership, not the auto-enrolment process.

Action needed when an opt-out notice is received: The employer must tell the scheme administrator if they receive a valid opt-out notice from an employee. The administrator must then treat the employee as if they hadn't joined the scheme on that occasion.

If an employer receives an invalid opt-out notice, they must tell the employee why it's invalid and the normal one month opt-out period is extended to six weeks.

Contribution refunds: If an employee gives their employer a valid opt-out notice on time, any contributions paid to the pension scheme by or for them on the basis that they had become an active member of the scheme on that occasion must be refunded by the employer (less any tax relief received, where appropriate).

The refund must normally be paid to the employee within one month of the opt-out notice being received, unless the employer's payroll arrangements have already closed, in which case it must be paid by the end of the next pay reference period.

Leaving the pension scheme in other circumstances: Employees always have the right to withdraw from a qualifying pension scheme if they don't want to be a member and, in some circumstances, may have to leave the scheme (for example, if they change jobs or emigrate). In such circumstances, the normal pension early leaver rules apply and they and their employer won't have the automatic right to a contribution refund that applies during the one month opt-out window.

Staying in the scheme on lower contributions: An alternative to opting out, or leaving the scheme, would be for an employee to remain an active member but pay a reduced level of contributions. This is possible (if the scheme rules allow) but as the contributions don't meet the required levels to be a qualifying pension scheme, the employee will have to periodically go through the automatic re-enrolment process.

More information: The Pensions Regulator's ‘Opting out' guidance provides some more information.

Opting-in

Jobholders who are not eligible jobholders don't have to be auto-enrolled into a qualifying pension scheme - but they can voluntarily opt-in. If they do, they will then be treated in the same way as an eligible jobholder.

Similarly, if an employer chooses to operate a waiting period, jobholders can opt-in during this period.

But, there are a few exceptions - a jobholder doesn't have a right to opt in if:

• the employer has given them notice of their dismissal,
• they've given the employer notice of their resignation or retirement,  
• they've been paid a winding-up lump sum in the last 12 months whilst in employment with the employer, subsequently left employment, but then been re-employed by the employer, or
• they've previously opted-in within the last 12 months but then subsequently opted-out of the scheme. In this case the employer can allow them to opt-in if they wish, but they don't have to

Employers must tell jobholders about their right to opt-in and how to give a valid opt-in notice, within six weeks of them becoming a jobholder.

Those who give a valid opt-in notice to the employer must then be treated as eligible jobholders and enrolled into the scheme from the start of the next pay reference period (or the subsequent one if the employer's payroll arrangements have already closed for the next period).

Employees without qualifying earnings: UK workers aged 16 to 75 who don't have qualifying earnings have a right to join a registered pension scheme. But this doesn't have to be a qualifying pension scheme and there's no need for the employer to contribute to it.

Again employers must tell such employees about their right to join a pension scheme, and how to give a valid joining notice, within six weeks of them becoming a worker. Those who give a valid joining notice to the employer must then be included in a pension scheme which they can contribute to by payroll deduction.

Again, there are a few exceptions. A worker doesn't have a right to join a scheme if:

• if the employer has given them notice of their dismissal, or
• they've given the employer notice of their resignation or retirement, or
• they've been paid a winding-up lump sum payment in the last 12 months whilst in employment with the employer, subsequently left employment, but then been re-employed by the employer

More information: Further details on opting in can be found in the Pensions Regulator's guidance ‘Opting in and joining'. They also have a useful flowchart which shows the process that should be followed when an employer receives an opt-in or joining notice.

Automatic re-enrolment

Roughly every three years, employers must automatically re-enrol most eligible jobholders who aren't active members of a qualifying pension scheme. The employer can choose any automatic re-enrolment date up to three months either side of the third anniversary of their staging date or previous automatic re-enrolment date.

Optional automatic re-enrolment: Since 1 April 2015, there are situations where automatic re-enrolment is optional. Employers don't have to automatically re-enrol eligible jobholders who have:

• enhanced, primary, individual (IP2014 or IP2016) or fixed (FP2012, FP2014 or FP2016) protection
• been given notice of their dismissal by the employer
• given the employer notice of their resignation or retirement
• taken action to end their active membership of a qualifying pension scheme less than 12 months before the enrolment date. This exception applies regardless of what category of worker they were when membership ended, or whether it ended before the employer's staging date, or
• received a winding-up lump sum within the last 12 months whilst in employment with the employer, subsequently left that employment but then was re-employed by the employer

Early re-enrolment: There are two circumstances where automatic re-enrolment must take place earlier than the usual three yearly exercise:

• If a worker regains eligible jobholder status having previously lost it temporarily (for example, because they were seconded abroad), they must be automatically re-enrolled immediately from that date
• If the actions of another party (such as the employer or scheme administrator) mean that either the scheme stops being a qualifying pension scheme or the employee's membership ends, they must be automatically re-enrolled into a qualifying pension scheme from the next day

Impact for those with transitional protections

Despite the abolition of the LTA from 6 April 2024, employers should still take care in handling auto-enrolment for employees with fixed protection (and potentially even enhanced protection) to help them avoid losing their protection - it’s still relevant for the purposes of two new allowances, the 'lump sum allowance' (LSA) and the 'lump sum and death benefit allowance' (LSDBA). 

Employees with enhanced or fixed protection have been able to resume pension funding without losing their protection since 6 April 2023, so long as they those had registered the protection by 15 March 2023 (which was still valid on 6 April 2023). But if either of these protections (most likely fixed protection 2016) was registered after 15 March 2023, then being auto-enrolled or auto re-enrolled would result in the loss of protection.

• Before 1 April 2015, employees transitional protections had to be treated in exactly the same way as other employees. So any eligible jobholders with enhanced protection or fixed protection (FP2012 or FP2014) had to opt-out, or else their protection was lost
• Since 1 April 2015, employers don’t have to auto-enrol or auto-re-enrol anyone who they have 'reasonable grounds to believe' has enhanced, primary, or any of the versions of fixed or individual protection - it's at their discretion. 

Regulation and compliance

While most employers will want to comply with their regulatory obligations, there may be some who choose not to (or fail to) fulfil their responsibilities. It's the role of The Pensions Regulator to police employers' compliance with the regulations and to take action where employers are not meeting their obligations.  

Employers ability to prove auto-enrolment compliance

To prove they're meeting their obligations, employers must:

• keep certain records about their company and employees (generally for six years) and
• periodically register information about the company, the employees and their pension provision with The Pensions Regulator

Employers must initially register their compliance information online with the Regulator within five months of:

• their staging date or
• for new employers after the end of the staging period, the date of setting up their PAYE scheme

They must then re-register every three years, within two months of their re-enrolment date.

The Pensions Regulator has produced a detailed guide to Keeping records. It has also produced a Declaration of compliance checklist which details all the information that's needed.

Checking employers meet their auto-enrolment obligations

The Pensions Regulator is responsible for regulating compliance with the workplace pension reform regime.

• The Regulator will write to employers 12 months and three months before their staging date to tell them about their duties and how to comply with them
• It will then police compliance by requiring employers to register information periodically and cross-checking this against records held by HMRC and pension scheme providers

The Regulator has a range of powers to deal with employers who don't meet their obligations.

Employer’s influence on opting-out

A key aim of workplace pension reform is to stimulate increased private pension provision, to help address the pension crisis and reduce the burden on the State.

To support this, there are penalties if an employer:

• encourages workers to leave, or opt-out of joining, a qualifying pension scheme (known as inducements); or
• when recruiting, gives any indication that applicants have more chance of success if they will opt-out (known as prohibited recruitment conduct)

Employers normally can't even give opt-out forms to employees if they want them: only the scheme administrator can do this.

Employees can appeal to an employment tribunal if their employer treats them unfavourably because they won't opt-out (for example, by not considering them for promotion). Dismissal on the grounds of not opting-out is automatically deemed unfair.

Failure to comply - penalties for not meeting obligations

If employers (or third parties acting for them) don't meet their obligations, The Pensions Regulator can issue them with:

• a warning letter requiring them to put matters right within a set timescale or
• a statutory notice requiring them to make good arrears of contributions. The notice can also require the employer to pay interest on the unpaid contributions.

If contributions are overdue by three months or more, The Pensions Regulator can make the employer meet the cost of both, their own and the jobholders', contributions.

If these notices aren't complied with, the Regulator can levy:

• a £400 fixed penalty plus
• escalating penalties ranging from £50 a day (for employers with less than five workers) to £10,000 a day (for employers with at least 500 workers). If the compliance failure is by a third party rather than an employer, the escalating penalty is £200 a day

The Regulator can apply the same penalties if an employer encourages workers to leave, or opt-out of joining, a qualifying pension scheme (known as inducements).

If employers break the rules against prohibited recruitment conduct, they face a fixed penalty ranging from £1,000 (for employers with less than five workers) to £5,000 (for employers with at least 250 workers).

Employers (or third parties) can ask the Regulator to review any notice or penalty. If they're still not satisfied after the review, appeals can be made to the Pensions Regulator Tribunal.

Senior office-bearers of the employer (such as company directors or partners in a partnership) can also be jailed for up to two years for wilfully failing to comply with the requirements to include employees in a qualifying pension scheme.

The Pensions Regulator provides further information in their guide ‘Compliance and enforcement policy'.