Automatic enrolment of employees in workplace pensions started in 2012 for larger employers and then gradually phased in for medium sized and then smaller sized employers by 2017.
What is Auto Enrolment?
Employers must automatically set up and enrol all qualifying employees in a workplace pension within 3 months of being employed.
- Employees can then decide to remain in the workplace pension.
- Employees can opt out of the workplace pension, but you give up valuable employer pension contributions.
- The default position is that you are a member of the pension scheme unless you physically opt out.
What are Qualifying Employees?
- Currently aged 22 or older and earning more than £10,000 pa (2023/24), you will be automatically enrolled.
- If you are age 22 or older and earning above the Lower Earnings Level (LEL) £6,240. If you earn above this, you are not automatically enrolled but you can ask to be opted in and cannot be refused.
- If you are aged 21 or below you do not automatically qualify although you can ask to be included i.e., opted in at your employer’s discretion.
How Much is Paid into My Pension?
- Earnings between £6,240 and £50,270 (2023/24) are qualifying earnings and this is what you and your employer’s contributions are based on.
- Employers contribute 3% of qualifying earnings.
- Employees contribute 4% of qualifying earnings plus 1% (tax relief) = 5% of qualifying earnings.
- Single owner/director companies with no employees other than themselves.
- Small owner/director firms where none or only of the owners/directors/shareholders has a contract of employment.
Changes to Qualifying Ages
The Pensions (Extension of Automatic Enrolment) Act 2023 received Royal Assent on 18 September 2023. As it is an ‘enabling Act’, it will come into force when the Secretary of State for Work and Pensions decides, this may be sooner or later given the current downturn in the economy.
- Minimum age will be reduced from Age 22 to 18 for automatic enrolment if earning more than £10,000 pa.
- 18-year-olds and above earning above the LEL (£6,240) are not automatically enrolled but can ask to be opted in and cannot be refused.
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