Pension Reform Auto Enrolment

by Jon Ingarfill, St. James’s Place Partner


“We’re all in”…but in what? 

The questions are many – why are you in? how does it affect you and by when do you have to be in? Furthermore, how much is it going to cost you and can you do ‘it’ yourself or will you need to pay someone? Finally, what happens if you ignore it?

Let’s start with some background to the pension reform. People are living longer -there are nearly 13,500 people over 100 years old in the UK- and the current State Pension system simply cannot afford to support every retiree forever. In fact, the last Labour Government concluded that 4 million people were not saving enough for later years, with 7.7 million not saving anything at all. In essence, relying solely on the State pension will provide the only thing money can’t buy – poverty. Hence, the need for workplace pension reform.

The Government has therefore decided to promote personal responsibility for retirement savings. The current pension system doesn’t reach all of the UK population and state pensions are currently unsustainable anyway. Furthermore, this situation will only get worse as we live longer.

Auto Enrolment

Under the new legislation, auto enrolment ensures employees join an employer’s pension scheme and employers will be liable for sharing the responsibility and cost of employees’ retirement. Where no employer scheme currently exists, a Qualifying Scheme (QS) will need to be established.


The phasing in of auto enrolment started on 1 October 2012 with minimum contribution rates being phased in over a six year period.  The start date (known as the staging date) for individual employers depends on your number of employees at 1 April 2012 and their PAYE reference number.

The ‘Staging Date’ for every business can be found on The Pension Regulator website.

Key points of Auto Enrolment

You’ll be required to automatically enrol any employees outlined below into your Qualifying Scheme on their staging date.  Ongoing, as an employee reaches 22 years of age, they must be auto enrolled into your scheme. The same applies to any new employees you take on after the staging date as well as existing employees that go over the earnings trigger.

Key points for you to consider:

  • All employers MUST automatically enrol eligible workers into a Qualifying Scheme
  • There will be NO exemptions
  • Business owners employing their spouse are employer/employee and affected by this legislation
  • You, as the employer, will be able to certify that your current Defined Contribution scheme meets the required contribution levels (if one exists and meets the criteria)
  • If you don’t have a scheme already in place, or it doesn’t allow auto enrolment, you must set up an alternative for auto enrolment


eligible workers:

  • Employees aged between 22 & State Pension Age and Working or ordinarily working in the UK and Earning more than the earnings trigger for auto enrolment in their pay reference period
  • Any employee not currently in a Qualifying Scheme (QS)

pay reference period: this may be weekly, monthly, annually or any other period

earnings trigger: £192 weekly, £833 monthly and £10,000 annually (for 2015/16)

minimum contributions: are defined as 1/120th of average qualifying earnings in the last three years

What constitutes earnings ?

  • Basic salary
  • Overtime
  • Bonus
  • Commission
  • Shift Allowance
  • Statutory Sick Pay
  • Maternity Pay
  • Paternity Pay
  • Adoption Pay

Beware! Some workers may be considered ‘workers’ for auto enrolment purposes even if they’re taxed as self-employed.

Auto enrolment date

Your employee must be auto enrolled into a qualifying scheme within six weeks of the later of:

  • your employer’s staging date
  • the date you became their employer
  • employee becoming 22 years of age
  • employee exceeding the earnings trigger.

Qualifying Schemes

You may already have a pension scheme in place that meets the qualifying criteria of a minimum contribution basis. Your existing registered pension scheme may be either occupational or personal. Minimum contributions are defined as 1/120th of average qualifying earnings in the last three years. In this case, you may be able to continue to use this for existing members by certifying your scheme and reconfirming it every year.

Salary sacrifice may work as a way of increasing pension contributions by incorporating savings in your employees NI and income tax and where offered some or all of the employer NI savings with no overall increase in costs to the employer and no change in take home pay for employees.

However unless the other requirements of a qualifying scheme are met i.e. no paperwork required, auto enrolment available and a default investment fund – an additional solution will also be required

For any new employees starting after your staging date, the contract of employment can state that employee contributions to the pension scheme will be on the basis of salary sacrifice.

Existing employees who are not in the scheme may be introduced to salary sacrifice but this route is voluntary and cannot be imposed on your employee. An investment of part or all of the employer’s NI saving could be part.

Any changes in respect of existing members should be considered as part of a communication prior to the employer’s staging date.

Existing Employer Pension Scheme

If you currently have a pension scheme in place, the contributions are normally based on earnings from the first pound earned, rather than starting at a minimum limit as is the case with banded earnings. The new legislation will allow for schemes that employers already have or that they put in place to have contributions based on an alternative basis with certain minimum levels applicable. These levels are known as tiers and an employer will have to certify which tier is applicable to their scheme

An employer can pay more than the minimum and indeed could pay the whole 8%

The employer MUST collect the employee contributions via payroll and pass these to their qualifying scheme.

Opting Out

  • Any employee who opts out during the statutory period of 1 month must have any contributions already deducted via payroll returned to them. The employer will then have to reclaim these monies from the qualifying scheme. If the employee leaves after this period, any contributions deducted will stay in the scheme
  • You cannot advise employees to opt out nor canvas them to see if they want to.
  • Eligible workers can choose to opt out if:
    • they choose to continue their private plan
    • they can’t afford to contribute
    • they refuse to join.
  • Any employee who opts for enhanced or fixed protection must ensure they opt out within one month otherwise they will be deemed to have made a contribution and will lose their protection, incurring a potential Lifetime Allowance Charge.
  • If an employee opts out and then leaves, he/she will be auto enrolled into your new employers scheme i.e. the opt out is per scheme and not per person.
  • Employees who choose to opt out must be automatically re-enrolled every three years when they can choose to opt out again.
  • Anyone who volunteers to re-join, must be allowed to at least once a year

Scheme Registration

As an employer, you’re required to prove you have met your initial obligations by registering your qualifying scheme with The Pension Regulator who will check the information against PAYE scheme data. You must do this within 5 months of your staging date and re-registration is required every 3 years.

If you’re using an existing scheme to meet your employer obligations for existing/new members,  details of ALL your schemes must be registered with The Pension Regulator and NOT just the one that is meeting ongoing auto enrolment requirements.

At the present time, registration with The Pensions Regulator can only be completed by phone.


Your contributions should be paid to the scheme provider by the 19th of the month following deduction e.g. contributions deducted via payroll on the 25 January are payable by 19 February.

The Pension Regulator is able to enforce compliance in order to ensure employers have relevant schemes in place to meet their duties both at the staging date and ongoing.

There will be a range of penalties and fines that may be imposed on the employer for non compliance. A warning may be given should you be accused of offering inducements to encourage your employees to opt out or leave the scheme.

Should you not comply with your new duties as an employer, the following fines can be imposed:

  • Fixed penalty of £400 where an employer fails to respond to a warning notice from The Pension Regulator
  • An escalating penalty of £50 to £10,000 a day (dependent size of business) for failure to pay contributions on time
  • Fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct e.g. if an employer screens job applicants on the basis of their intention to join the pension scheme.

NEST (National Employment Savings Trust)

NEST is not auto enrolment. It’s a pension scheme that meets all qualifying scheme requirements and is designed to meet the needs of low to middle earnings employees.
NEST is:

  • a Qualifying Scheme
  • designed to meet needs of low to moderate earners and their employers, and has a public obligation to accept any employer
  • used to fulfil auto enrolment duties
  • a trust based defined contribution scheme
  • run by NEST Corporation – a not for profit corporate trustee
  • online with a system to simplify administration
  • currently subject to a contributions maximum of £4,600 pa (2015/16)
  • not available for transfers in or out until 2017 with the exception of monies in or out under a pension sharing order and at retirement to purchase benefits
  • charged at 0.3% AMC with contribution charge of 1.8%

More information:

Tel 0300 020 0090

The Peoples Pension

This is a pension scheme that meets all qualifying scheme requirements and is designed for  low to middle earnings employees.

The Peoples Pension is:

  • a Qualifying Scheme
  • over ten years experience operating a semi-automatic enrolment scheme
  • designed to meet needs of low to moderate earners and their employers
  • available to fulfil auto enrolment duties
  • administered by B&CE
  • online with a system to simplify administration
  • charged at 0.5% AMC plus a £300 +VAT set up fee
  • available for transfers in

More information

Tel 0800 612 8080

NOW Pensions

This is a pension scheme that meets all Qualifying Scheme requirements and is designed to meet the needs of low to middle earnings employees.

NOW is

  • a Qualifying Scheme
  • run by ATP, the provider of the Danish National Pension
  • a trust based defined contribution scheme
  • designed to meet needs of low to moderate earners and their employers
  • available for use to fulfil auto enrolment duties
  • online with a system to simplify administration
  • charged at 0.3% AMC with a £1.50/mnth member administration charge and a £20-36/mnth employer fee
  • available for transfers in

More information

Tel 0333 332 2222

Employer Considerations

  1. What is your staging date? Ascertain your staging date and when the new duties will impact on you.
  2. Can you use an existing scheme? Check it qualifies with the scheme provider. Due to the administration burden of auto enrolment it’s likely that insurance companies will not offer this facility on all or some of the schemes they operate. In this case, existing employer schemes will not be Qualifying Schemes for new employees or those that over time meet the eligibility criteria of the new legislation. You should check with your existing provider to ascertain if auto enrolment will be available under their scheme.
  3. Can you amend an existing scheme to meet qualifying criteria?
  4. Set up a new scheme that meets the qualifying criteria and/or use suitable low cost qualifying schemes such as NEST/ The People’s Pension/NOW for some or all of your employees
  5. Offer a combination of options for different areas of the workforce.

Assessing the cost

When you’ve established your staging date, you need to assess the impact of the cost on your business and consider strategies to minimise your risk. Make sure you consider the following financial expenditure when preparing your budget and cost forecasts:

  • your employer contribution
  • initial set up costs
  • on going administration costs
  • calculation of employees in the scheme on day 1 and subsequent dates of employees meeting qualifying status
  • take into consideration any pay reviews due in the intervening period
  • Review costs of different contribution options (certify alternative to ‘banded earnings’ basis)

Strategies for minimising your costs could include:

  • a review of salary sacrifice
  • the impact on your current reward strategy
  • a payroll review
  • a review of HR and admin processes including relevant support

Your next steps

Your 5-step action checklist from the Pensions Regulator:

  1. Know when you need to act
  2. Start the planning process
  3. Brief key management personnel
  4. Mobilise an implementation team
  5. Communicate the changes to staff

What to advise your employees:

  • Think seriously about what you want to do – you’re going to have to pay in, so why not start now at a decent level?
  • Think about the real cost to you now compared to the benefit you’ll get later. Small lifestyle adjustments now can make it very affordable.
  • Don’t forget your boss pays in too so this is as good as a pay rise. It’s additional money for you!
  • The Tax Relief is also additional money
  • And…. all the money you pay in grows in a tax free fund

More Information

St James’s Place supporting ALIKC Members

Jon Ingarfill and Howard Abrahams are available to our members for exclusive support and advice. Please don’t hesitate to contact them for a confidential conversation about the following considerations:

  • preparation to meet your obligations
  • assessment of your workforce
  • communication of the changes to your staff
  • research, selection and set-up of the best scheme for your business
  • dealing with staff who opt out
  • registration of your scheme with the Pensions Regulator

Tel 020 8421 1616

Useful Links

The Pension Regulator

Department of Work & Pensions