What does auto-enrolment mean for you?

Most employers / businesses are now very aware of the requirement to establish a workplace / auto-enrolment pension scheme for their employees. The larger employers reached their mandatory 'staging dates' some time ago, and small to medium sized enterprises have also now staged. Indeed, many schemes are now seeing their three-yearly anniversaries for re-enrolment, which are just as important as the initial enrolment. More detail on this renewal is detailed below.

From 01 October 2017, no more staging dates have been issued and instant pension duties took effect. This means that a new business start-up or a first-time employer will need to provide a workplace pension and automatically enrol eligible employees into a qualifying scheme as soon as they are employed.

A simple guide for employers, produced by The Pensions Regulator, can be found here.

It is clear that individuals in the UK are not saving enough for their retirement income because many people will fall short of their target income at retirement. With the pressures on the State Pension (DWP) increasing, many people will know of the changes to State Pension benefits for those reaching State pension age on or after 06 April 2016. The standard full new State Pension is currently £221.20 gross per week. The age at which the State Pension may be claimed has increased from 65 to higher ages, such as 66 for both men and women from 2020, with further changes to follow (proposed age increase to 67 from 2026-2028 and then linked to life expectancy).

Qualifying pension schemes can be arranged through a range of providers to meet the needs of employers and their staff. Independent financial advice is important to be able to access these schemes, including the National Employment Savings Trust (NEST), if suitable.

The greatest concern we have witnessed by employers is the cost to their bottom line and when this is required. This is partly illustrated below.

Bringing forward our Auto-Enrolment to enhance our employees' conditions could not have been easier without the assistance of Chapters Financial, who dealt with the initial set up, liaising with HMRC, Pension provider and employees. Our warmest thanks go to Keith and his team for the smooth transition of the day to day running of the scheme in house.
LJ, Director of SDI Limited, Camberley, Surrey

Automatic Enrolment Duties

A helpful tool from The Pensions Regulator for employers/businesses to work out their automatic enrolment duties can be found here.

Phasing Dates & Contributions

Prior to October 2017, employers were usually notified by The Pensions Regulator 12 months before the date they had to implement their phase of the pensions auto-enrolment funding. The contribution level was phased from the outset with larger employers having started to pay in from October 2012.

The initial minimum contributions were as follows (contributions made on a band of earnings between (in tax year 2024/2025) £6,240 gross pa and £50,270 gross pa (the lower limit to be linked to the National Insurance LEL and the higher limit in 06/07 terms and up-rated in line with National Average Earnings):

  • Employer: 1.0% pa of earnings
  • Employee: 0.8% pa of earnings
  • Tax relief: 0.2% pa of earnings

Second Phase - April 2018 to April 2019

From April 2018 (originally planned to be October 2017) the second phase started and saw an increase in funding/contributions to 5% gross pa of band earnings as a minimum (salary/bonus/overtime, etc within band earnings) divided as follows:

  • Employer: 2.0% pa of earnings
  • Employee; 2.4% pa of earnings
  • Tax relief: 0.6% pa of earnings

Third Phase - April 2019 onwards

From April 2019 (originally planned to be October 2018) the third phase started and saw an increase in funding/contributions to 8% gross pa of band earnings minimum (salary/bonus/overtime, etc within band earnings) divided as follows:

  • Employer: 3.0% pa of earnings
  • Employee: 4.0% pa of earnings
  • Tax relief: 1.0% pa of earnings

You can see that there are some significant consequences to this legislation and therefore many employers need to start planning now to ensure that they are ready for the changes in their cost projections, and also the requirement to ensure that they are ready to meet their responsibilities.

It should be noted that the level of tax relief, the way contributions are calculated based on income levels or 'band earnings' and some other issues may vary.

An employer should also build into their planning any additional payroll set up costs that may be applicable in ensuring that their process has the capability of dealing with the enrolment process.

Employees opting in and out

All employers are now required to automatically enrol their eligible workers into a qualifying pension scheme and to make the relevant contributions to the qualifying scheme selected.

Employees will have the facility to opt out of their employer's qualifying scheme after being automatically enrolled within a prescribed time period if they do not want to remain in the scheme. They have one month from the date that they have been given prescribed information to opt out and they may do this by contacting the scheme. They will then be put back in the position they would have been in if they had not joined the scheme. This may involve a refund of any contributions taken following automatic enrolment into the scheme. They can choose to leave the scheme after the opt out period ends, and any contributions made would then remain in the scheme until benefits are drawn or transferred to another provider if this facility is available. Some trust based schemes may provide a refund less tax under short service refund rules applicable to some occupational pension schemes within two years of joining. If an employee opts out the employer will not have to make pension contributions on their behalf. However, an employer cannot induce an employee into opting out of or leaving the scheme.

An employee can choose to rejoin the scheme later at the employer/qualifying scheme's discretion and will be automatically re-enrolled every three years. The employer will then have to contribute again in accordance with the phasing above.

Employers need to be ready to manage any opt ins and outs and to ensure that they maintain records accordingly.

Just wanted to send an email to say how helpful both Keith and Vicky have been regarding Auto Enrolment and a couple of other questions that I needed clarification on regarding our employees.
CW (Accounts/Payroll Department)

Administration & existing schemes

An employer can decide to run a scheme within its own arrangements or use the National Employment Savings Trust (NEST) scheme put in place by the Government to collect contributions and to administer them accordingly. Some employers already have pensions schemes in place and an employer will need to identify whether the existing scheme is (or can be made to be) a qualifying scheme for auto-enrolment purposes.

If an employer wants to achieve this, they will need to look at the cost to them and to the scheme in doing this.

Are you approaching your company's auto-enrolment three-yearly anniversary?

What may not be so obvious to employers is the need to undertake a re-enrolment exercise on each three-year anniversary of the first auto-enrolment date. You are likely to receive a postal or email reminder direct from The Pensions Regulator in advance of these anniversary dates. But what do you need to do?

  • Choose a re-enrolment date (you have a six-month window from which you can choose a date – this starts three months before and ends three months after the three-yearly anniversary of your staging date).
  • Assess and re-enrol staff on your re-enrolment date. This applies to staff who have opted out of the scheme, left the scheme after the end of the opt-out period or who have stayed in the scheme but chosen to contribute less than the minimum level.
  • Write to staff you have re-enrolled within six weeks of your re-enrolment date.
  • Complete a re-declaration of compliance with The Pensions Regulator within five months of the third anniversary of your staging date.

You may be aware that employee contributions rose again in April 2019 and many employers notified team members of this change a few months in advance as a reminder and to allow them to plan accordingly. Helpful, I am sure you would agree, but one important question to ask yourself is when was the last time you communicated the real benefits of what you do for your staff through your pension arrangement?

Chapters Financial has been working with our clients to help with these team communications to ensure that all are advised of changes that may affect their household budgets, but also to remind them of the benefits of what is being achieved. We have little doubt that some employees will always begrudge the opportunities, but many others welcome the important long-term savings. The Office for National Statistics noted in November 2023 that the workplace pension participation rate in the UK in 2022 was at 88% of eligible employees (20.4 million individuals). Prior to auto-enrolment legislation, in 2012, participation levels were at 47%.

I had huge concerns about setting up our auto-enrolment pension scheme. From my initial research, it seemed to me to be a long, complicated and stressful process and I was very worried about the time it would take to organise. The best decision I made was to work with Keith and his team at Chapters. They made the whole process as smooth as possible. We now have a great scheme in place, and happy employees, who were all given the opportunity to speak to them about any concerns or questions they had. They saved me from so much extra stress, I cannot recommend them highly enough!!
TK, Director, HLS Limited, Yateley, Hampshire

On-site auto-enrolment employee pension presentations / seminars

As the momentum and delivery requirements of pension auto-enrolment (AE as it is sometimes known) become paramount for all employers, we have prepared an employee focused presentation that meets the needs of the new pensions legislation and is themed to the employer's requirements. This is followed by a questions & answers session, along with hand-outs, to answer points raised by the audience. We have received very positive feedback for this efficient method of ensuring that staff communications comply with the legal requirements.

Chapters Financial Limited is employed by companies to implement and deliver a fully compliant auto-enrolment pension scheme, from scheme selection, initial administration, implementation, presentations and end administration including notifications to The Pensions Regulator where required. We would hope that post-implementation, we can work with employers, their staff and pension scheme to ensure its continued success.

Employers and those affected by auto-enrolment pensions

As independent financial advisers (IFAs), we can guide employers to the right scheme for the needs of their employees and to implement the arrangement in good time (with enough notice) to meet the outcomes of this legislation.

Please contact Keith Churchouse and the team at Chapters Financial to discuss your needs on 01483 578800.

Chapters Financial Limited is not responsible for the content of external webpages

Chapters Financial Limited is well placed to help employers and business with this and we would be pleased to speak with directors/owners of your company to ensure that you meet the requirements needed. This should not be seen or used as individual advice or employer specific advice and you should seek independent financial advice for your own circumstances.

As an SME who already provided staff with a pension plan there was indeed some sanity checks around compliance with the new Auto-enrolment rules. Chapters Financial took the total lead on this process and the whole procedure was completely easy and uncomplicated for us to adhere and go forward compliant in our pension offering.
Mrs G B, Director CH Limited, Guildford, Surrey