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Workplace Pensions & Auto Enrolment



The following is a guide to the new rules and the implication of auto-enrolment and workplace pensions. Whilst comprehensive, it should not be used as a definitive guide. In addition, the practical implementation guidelines specified by The Pension Regulator may change as auto enrolment becomes more widespread. The rates and bands set out below were correct at the time of writing on 18 March 2022.

Employers who take on staff for the first time must deal with their Auto-Enrolment duties immediately. Employers will have 6 weeks to write to their staff and 5 months to file their Declaration of Compliance. However, employee pension deductions and employer contributions must be dealt with from the first pay date for all eligible employees. Affected employers will have 6 weeks to set-up a qualifying pension scheme. We can help with both running a payroll and setting up a qualifying auto-enrolment pension scheme.




The Pensions Act 2008 mandates the use of automatic enrolment into a workplace pension scheme, from which an individual would need to actively opt out, to encourage saving for retirement. Each employer is allocated a staging date. This is the date from which the workplace pension law applies to the employer.


A workplace pension is a way of saving for retirement that is arranged by an employer. Other names for workplace pensions are ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pensions. Most new pension schemes are now ‘money purchase’, also known as ‘defined contribution’ or ‘DC’, schemes.


Other schemes are known as defined benefit schemes and are not dealt with here. The National Employment Savings Trust (NEST) is a default pension scheme that all employers can use to enrol their staff into. NEST is an ‘occupational’ scheme. The following information only deals with money purchase schemes.


Eligibility and entitlement


A worker’s age and their earnings determines who can and must be a member of a workplace pension under auto-enrolment.


Each year, the government reviews the level of earnings at which employers must Auto-Enrolment their employees into an auto-enrolment pension scheme.

The earnings limit, for auto-enrolment purposes, up to and including 2021-22, has always been set at the same as the National Insurance Lower Earnings Limit (LEL). For 2021-22 the LEL was £6,240 per annum, £520 per month or £120 per week.

However, for 2022-23, the LEL will increase from £6,240 to £6,396 pa (£533 per month or £123 per week), but the lower limit for auto-enrolment purposes will remain the same at £6,240.


In 2022-23, from 6 July 2022, there was an increase in the Primary threshold to £12,570 pa. This is the point when employees start to pay National Insurance. There is also a Secondary threshold of £9,100 pa for 2022-23. This is the point when employers start to pay National Insurance on their employees' wages and salaries. Neither the Primary nor Secondary thresholds are relevant for auto-enrolment purposes.  

The earnings trigger for automatic enrolment is £10,000 pa. This limit has not increased since the start of the auto-enrolment system.


Basic requirements


The basic requirement placed on an employer is to automatically enrol eligible workers into a qualifying workplace pension. An eligible worker is defined in the legislation as someone that:

  • is aged at least 22

  • has not reached pensionable age, and

  • to whom earnings of more than £10,000 pa are payable by the employer.


The earnings trigger was originally aligned with the level of the income tax personal allowance, but this link has now been removed. The Act contains provisions for the annual review of the earnings limit.


Types of workers


The rules that define who must be enrolled, and who can elect to join or opt in to a workplace pension scheme are divided into three main categories of people. The legislation does not use the term ‘employee’, but instead uses the terms of worker and job holder. The latter categories include UK based employees but also those people who are under an obligation to provide their personal services. However, it excludes somebody who is in business on their own account e.g. the self-employed or those working through their own personal services company.


An employer needs to establish which workers would fall under the categories set out below.


= Eligible Jobholders

‘Eligible jobholders’ is a phrase used for workers who must, if they are not currently enrolled in a qualifying scheme, be automatically enrolled into a workplace pension scheme.


To be an ‘eligible jobholder’ a worker needs to:

  • be aged between 22 years old and State Pension age

  • earn more than £10,000 a year

  • work in the UK


An employer must give their eligible jobholders information about their workplace pension scheme.


= Non-eligible Jobholders


‘Non-eligible jobholders’ is a phrase used for workers who are not eligible for automatic enrolment but can choose to opt in to an automatic enrolment pension scheme.


Non-eligible jobholders:

  • earn more than £6,240 a year (2022-23) but less than £10,000, and

  • work in the UK, and

  • are aged between 16 and 74


  • earn more than £10,000, and

  • work in the UK, and

  • are aged between 16 and 21 or aged between state pension age and 74

The State Pension age has been undergoing radical changes since April 2010. The changes saw the State Pension age rise to 65 for women between 2010 and 2018, and will then increase to 66, 67 and 68 for both men and women. There are plans to increase the State Pension age further. Check your State Pension age by clicking here.


Non-eligible jobholders do not need to be automatically enrolled into a workplace pension. However, they have the right to opt in to an automatic enrolment scheme, if they choose, so an employer still has duties in relation to them.


An employer must give their non-eligible jobholders certain information about opting in to an automatic enrolment scheme and what this means for them.


The employer must give this information to the non-eligible jobholder within six weeks of the later of:

  • the employer’s staging date; or

  • the non-eligible jobholder’s first day of employment.


If a non-eligible jobholder chooses to opt in to a pension scheme, they must do so by giving an ‘opt-in notice’. On receipt of a valid opt-in notice, the employer must enrol the non-eligible jobholder into an automatic enrolment scheme by following the automatic enrolment process. The employer will then need to pay employer contributions to the scheme and deduct contributions from the jobholder’s pay and pay these to the scheme.

= Entitled Workers


‘Entitled workers’ is a phrase used for workers who are not eligible for automatic enrolment but can choose to join a pension scheme.


Entitled workers are:

  • aged between 16 and 74; and

  • working or ordinarily work in the UK under their contract; and

  • have qualifying earnings payable by the employer in the relevant pay reference period but below the lower earnings threshold.


Entitled workers do not need to be automatically enrolled into a workplace pension. However, they have the right to join a pension scheme, if they choose, so an employer still has duties in relation to them. The pension scheme the employer chooses to use can be a different scheme to the one they may be using for automatic enrolment.


An employer must give their entitled workers certain information about joining a pension scheme and what this means for them.


The employer must give this information to the entitled worker within six weeks of the later of:

  • The employer’s staging date; or

  • The non-eligible jobholder’s first day of employment.


If an entitled worker chooses to join a pension scheme, they must do so by giving the employer a ‘joining notice’. On receipt of a joining notice, the employer must then arrange membership of a scheme for them.


The employer will then need to deduct contributions on behalf of the entitled worker and pay these into the scheme. However, the employer does not have to pay into the scheme themselves, unless they choose to do so or have chosen a scheme that requires an employer contribution.


Table summary

The three types of worker noted above can be summarised as follows:

AE table.JPG

Figures in the above table are correct for tax year 2022-23. *SPA = state pension age


1 Has a right to join a pension scheme (known as entitled workers)
If a worker asks the employer then the employer must provide a pension scheme for them, but the employer doesn’t have to pay contributions.


2 Has a right to opt in (known as non-eligible workers)
If a worker asks the employer to be put into a pension scheme, the employer must put them in their automatic enrolment pension scheme and pay regular contributions.


3 Automatically enrol (known as eligible workers)
An employer must put these workers in its automatic enrolment pension scheme and pay regular contributions. An employer doesn’t need to ask the employee’s permission. If they give notice, or the employer gives them notice, to leave employment before the employer has completed this process, the employer has a choice whether to automatically enrol them or not.


It is against the law to try to influence any workers into opting out of an employer’s pension scheme.

Money deducted from pay


A percentage of the worker’s pay will be deducted automatically by the employer every payday. This together with contributions from the employer and the government will be paid into the worker’s pension pot. The employer needs to pay the contributions to the pension scheme within a specified time limit. Contributions must be paid to the pension pot no later than 22nd day (19th if paid by cheque) of the month after the deduction from pay was made.


The money is normally invested within the pension pot by the pension scheme administrators. Sometimes employees have a say into what type of investments the pension pot holds, and sometimes the investments are decided on by the pension scheme administrator.


How much will the contributions be?


The minimum an employer had to pay into the worker’s pension pot was 1% of their ‘qualifying earnings’ but rose to 3% from 2019. The minimum amount that had to be deducted from an employee’s pay and paid into their pension pot was 0.8% of their ‘qualifying earnings’ but rose to 4% from 2019. The government paid into the pension pot 0.2% of their ‘qualifying earnings’ which rose to 1% from 2019.


The minimum contributions are set out in the following table:


                                                           Employer          Employee        Government                Total

Start date to 5 April 2018                     1%                   0.8%                   0.2%                         2%

6 April 2018 to 5 April 2019                 2%                   2.4%                   0.6%                         5%

6 April 2019 onwards                            3%                     4.0%                   1.0%                         8%


‘Qualifying earnings’ are either:

  • the amount earned before tax between £6,240 and £50,270 a year (for 2022-23)

  • the entire salary or wages before tax


The employer chooses which method that they wish to use to work out the worker’s qualifying earnings.


The employer can put the worker in a scheme where the worker and/or the employer have to pay more than the legal minimum. In other cases the worker and the employer have the option to pay in more than the legal minimum. The worker can pay in less, as long as the employer puts in enough to meet the legal minimum.


Earnings from different employments are not aggregated, so an employer only needs to consider the worker’s employment with them when making their assessment and making contributions to a pension.


Phasing in of automatic enrolment


The automatic enrolment requirements were introduced gradually on individual employers starting from 1 October 2012 until 1 February 2018. The relevant date for each employer, their staging date, depended on the size of the employer and their PAYE reference number.


From 2014 the phasing in started to affect employers with less than 250 but more than 50 employees and, in some cases, those employing between 1 and 50 employees. The phasing in of auto-enrolment was completed at the end of 2017 for all employers who have workers.


The Pensions Regulator wrote to all employers around 12 months before their staging date so that they knew when to automatically enrol eligible workers. A further reminder was sent three months before the employer’s staging date.




The Pensions Act 2011 introduced an optional waiting period into the automatic enrolment process. That would allow employers to defer the automatic enrolment date of a worker for up to three months by providing them with a notice to that effect.


The optional waiting period may be applied by the employer in accordance with their specific circumstances which could be:

  • from the set employer’s staging date

  • from the worker’s first day of employment, if falling after the staging date; or

  • from the date when a worker becomes eligible for automatic enrolment, i.e. when they turn 22 or their earnings trigger eligibility.


Postponement can be useful where an employee has an earnings spike e.g. through a bonus, where a short term employee is taken on e.g. for less than 3 months or where a worker has given notice to leave an employer.

If a worker is paid more than £520 in a month or more than £120 in a week (*), even if their contracted annual earnings are less than £10,000 pa, then they must be auto enrolled into a workplace pension in the week or month that their pay exceeds the above limits. This could arise if the worker receives a bonus or is paid overtime in a particular pay period (* 2022-23 rates).


Once a worker is auto enrolled, even because of a one off earnings spike, then they must remain in the pension scheme and contributions must be made on qualifying earnings. If band earnings of over £6,240 pa are used as qualifying earnings, then it is possible that if the employee normally earns less than £520 pm then no pension contributions would in fact be made in future pay periods.


It would also mean that a worker, who would normally be classed as a non-eligible worker, i.e. they earn between £6,240 and £10,000 pa and therefore would not have to pay into a workplace pension, is now required to contribute to a pension based on their qualifying band earnings over £6,240 (*). Once auto-enrolled both the employee and employer must make minimum contributions (* 2022-23 rates).


An employer may therefore decide to postpone auto enrolling an employee, or group of employees, into the workplace pension scheme for up to 3 months. An employer cannot apply a further period of postpone to an employee, or group of employees. If on the last day of the postponement period the worker is eligible to be auto enrolled, then the employer must put their workers into a pension scheme straight away. So, if at the end of that period the employee earns over the specified limits, of £833 pm or £192 pw, they must be auto-enrolled.


During the waiting postponement period workers may nevertheless opt in to the employer’s workplace pension at any point. An employer must write to their workers within six weeks of the postponement start date telling them why they have been postponed.


Exempt employers


The general rule is that all employers, even those with workers earning less than £120 pw or £6,240 pa (*) must set up an auto enrolment pension scheme even though no workers will be enrolled (* 2022-23 rates).


An employer is not exempt from setting up a workplace pension if all the employees have agreed to opt out of the pension scheme. The fact that the employer has workers means that it must set up a scheme and if they meet the criteria they must be auto enrolled. In fact, it is an offence punishable by a fine to encourage a worker to opt out or not to join a scheme. Actions like handing out opt-out notices would breach the rules. Only the pension scheme provider can issue opt-out notices, and only once a worker is enrolled and contributions have been deducted.


An exemption from the rule exists for directors of companies that have no other workers with contracts of employment or where the company has only directors and no more than one director has a contract of employment. Directors are officers of a company and not necessarily workers, unless they have a contract of employment. A contract does not need to be in writing; it can be implied. Even if the employer has only one employee then it must set up an auto enrolment pension scheme.


A director, as an officer of a company, not as an employee, may earn over £10,000 pa but is not still not required to auto enrol, and set up a pension scheme, unless at least one other director with a contract of employment exists or the employer has another employee. A husband and wife company where both are directors with no employment contacts is exempt. It is a question of fact, looking at the particular circumstances, whether somebody is an employee. So if the wife works (under an express or implied contract of employment) for the sole director husband then the exemption is not available.


Therefore, a sole director-shareholder of their own company, with no workers, can apply for exemption.


Assessing and enrolling workers


An employer must first assess its employees on the pay date that falls into the same pay reference period (PRP) as its staging date. This date can be either before or after its pay date, so it's important to check when the employer needs to start assessing its employees. See section below.


Within six weeks from the staging date an employer must:

  • send its workplace pension provider all the information that it needs to set up all active members of the scheme

  • write to each worker to tell them how automatic enrolment applies to them and explain their rights

  • tell their workers what contributions will be deducted from their pay and that they have a right to opt out of your pension scheme if they wish to do so

  • write to workers who have been automatically enrolled explaining what the employer has done and providing details of the pension scheme it has chosen for them

  • write to workers who have a right to join a pension scheme explaining how automatic enrolment applies to them.




An employer must keep up to date detailed records of its employees, their addresses, dates of birth, National Insurance numbers, wages and salaries, pension contributions for each pay period. The latter must be kept for six years.


An employer must also keep records of letters sent to workers, joiners and leavers, opt-in and opt-out requests and records that show when contributions were paid.


After the staging date, an employer must write to its workers to tell them about the workplace pension scheme and how automatic enrolment applies to them. The Pension Acts define the minimum information that must be provided in the letters.


Every pay period the employer must assess its workers to review their ages, earnings and contributions. Payroll software can simplify the above processes and recordkeeping and, in the case of a large number of workers with varying ages and variable earnings, it can be essential.

Declaration of compliance

An employer needs to complete their first declaration of compliance within five months of their staging date / when their first auto-enrolment duties started. The employer cannot do that without a scheme in place, as specific scheme reference numbers and number of workers must be disclosed. There is a £400 fine for failing to complete the declaration and tough civil penalties too. For blatant refusal to embrace their duties, directors will be committing a criminal offence punishable by up to two years in prison.

The declaration must be repeated every three years. This is known as re-enrolment.



Re-enrolment and re-declaration are processes that employers must go through every three years. Employers must assess their staff to see if any need to be put back into an automatic enrolment pension scheme. This includes any staff who previously opted out of, or left, the scheme, if they still meet the eligibility criteria on the employer’s re-enrolment date.

Employers must re-assess their staff who previous opted out of the pension scheme or reduced their contributions. Employers must then re-enrol those eligible staff back in the pension scheme. They then need to submit a re-declaration of compliance. This must be submitted within 5 calendar months of the third anniversary of their original staging / re-enrolment date.

The re-enrolment date is the day when employers must put their eligible staff back into a pension scheme.  Employers can choose any date that falls within three months before, or three months after the anniversary of their staging date. Employers are encouraged to use the third anniversary date of their staging date for simplicity.

Receiving tax relief on employee pension contributions


There are two main methods of receiving tax relief on a worker’s pension contributions. The method depends on the type of pension scheme that the employer has chosen. The two main methods are:


Net pay


The employer takes the contribution from the worker’s pay before it is taxed. The worker only pays tax on what is left. This means that the worker gets full tax relief, no matter if they pay tax at the basic, higher or additional rate.  The amount shown on the payslip is the pension contribution including the tax relief. A worker will not get tax relief if they don’t pay tax, e.g. because they earn less than the tax threshold.


Relief at source


The employer takes the pension contributions after calculating and deducing any tax and National Insurance from gross pay.

The pension provider claims the tax relief, at the basic rate of tax, from H M Revenue & Customs and this is added to the worker’s pension pot. With ‘relief at source’, the amount a workers sees on their payslip is only their contributions, and does not include the tax relief. A worker may be able to claim tax back if they pay tax at the higher or additional rates of Income Tax.


Effect on tax credits, income-related benefits or student loan repayments


Joining a workplace pension scheme means the workers’ take-home pay will be reduced which may:

  • mean they are entitled to tax credits or increase the amount of tax credits they get

  • mean they are entitled to an income-related benefit or increase the amount of benefit they get

  • reduce the amount of student loan repayments they need to make.


Withdrawing money from the pension pot


The worker can’t usually take the money out before they are 55 years old (#) unless they are seriously ill. There are restrictions regarding ‘tax’ free withdrawals. The money that a worker gets from their workplace pension, or other private or occupations pensions, is on top of the State Pension. (# the minimum age is increasing to 58 and will be set at 10 years below State Pension age).


Even if the worker doesn’t pay Income Tax, they’ll still get tax relief if their employer’s pension scheme uses relief at source to add tax relief to your pension pot.


The worker manages their own pension


The pension provider will usually send the worker a statement each year to tell them how much is in their pension pot. The worker may be able to nominate someone to get their pension if they die. This can usually be done at any time and the nomination can be changed at any time.


Changing jobs and taking leave


If the worker changes jobs, their workplace pension still belongs to them. The money will still be invested and they will be able to withdraw it as explained above.


If they get another job they will be able to join the workplace pension arranged by their new employer.


Depending on the schemes rules they may be able to:

  • carry on making contributions to their old pension

  • transfer the pension pot built up with the old employer to the new pension scheme


During paid leave, the worker and the employer carry on making pension contributions. The amount the worker contributes is based on their actual pay during this time, but the employer pays contributions based on the salary the worker would have received if they weren’t on leave.


During unpaid leave, the employer doesn’t have to make pension contributions unless the contract with the worker says otherwise. The worker may be able to make contributions if they want to, but they should check with the employer or pension scheme provider.


If the worker wants to leave a workplace pension scheme


If the worker wasn’t automatically enrolled, then they will need to check with the employer as to what they need to do. If they were automatically enrolled, then they can leave (opt-out) if they want to.


If they opt out within a month of the employer adding them to the pension scheme, they’ll get back the money they’ve already paid in.


The rules of the pension scheme may allow them to reduce their contributions to the workplace pension for a short time. They should check with both their employer and the pension scheme provider to see if they can do this.


The worker will be able to opt back in to the workplace pension scheme at any time by writing to their employer. An employer then has to return them back into its workplace scheme. The employer only has to accept an opt-back notice once in any 12-month period. Once returned back into the pension scheme, both the employer and worker will start to make contributions again. However, if the worker is an ‘entitled worker’ then the employer is not obliged to make contributions.


If the worker opts out of their workplace pension scheme the employer should automatically enrol them back into that scheme after 3 years, as long as that worker still qualifies as an ‘eligible jobholder’. The employer should write to that ‘eligible jobholder’ when they do this, although at that time the ‘eligible jobholder’ can again opt out.


A worker who reaches state pension age will remain in the pension scheme unless they choose to opt out or until they cease active membership from the scheme or leave the employer.


Protection of pension funds


Most workplace pension schemes, and especially for smaller employers, are defined contribution schemes. These types of schemes are usually run by pension providers, so if the employer goes bust the worker will not lose their pension pot. Most pension providers that run schemes for small business are authorised by the Financial Conduct Authority. As such, if they fall into financial difficulty, the workers would receive compensation from the Financial Services Compensation Scheme.   


With a defined contribution pension scheme the amount that the worker receives is dependent upon how much is paid into the pension scheme and investment growth.

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