Automatic Enrolment for Employees
Please note that most advice on auto-enrolment, occupational pensions and workplace pensions is not regulated by the Financial Conduct Authority but by The Pensions Reglator.
What is Automatic Enrolment?
Starting from October 2012, up to 11 million workers will be automatically enrolled into a workplace pension. Larger employers will go first, with small and medium sized employers following over the next six years.
A workplace pension is a way of saving for retirement arranged by an individual’s employer. It is sometimes called a ‘company pension’, an ‘occupational pension’ or a ‘works pension’.
Automatic enrolment into a workplace pension is an easy, hassle-free way for workers to save for their retirement while they are earning.
Saving into a workplace pension can also help individuals to build up pension savings more quickly as they are not saving on their own. Their employer and the government (in the form of tax relief) also pay into the workplace pension and once the new employer duty is fully rolled out, an individual’s contributions are effectively doubled by the employer contribution and tax relief.
Why is this happening?
Millions of people are not saving enough to have the income they are likely to want in retirement. Life expectancy in the UK is increasing and at the same time people are saving less into pensions.
In 1901 there were 10 people working for every pensioner in the UK. In 2010 there were 3 people working for every pensioner. By 2050 it is expected that this will change to just 2 workers.
Who will be enrolled into a workplace pension?
Employers will automatically enrol workers into a workplace pension who:
- are not already in a qualifying pension scheme
- are aged 22 or over
- are under State Pension age
- earn more than £10,000 a year (this figure is reviewed every year), and work or usually work in the UK
Opting out of a workplace pension
If a worker opts out within one month from the day they officially become a member of the scheme, it will be as if they were never a member of the pension scheme and any payments made by them to their pension will be refunded. If they choose to opt out after this period, depending on the scheme, the payments already made may not be refunded and will remain in their pension scheme until they retire.
Deciding to rejoin a workplace pension
If a worker opts out or stops saving into their employer’s pension scheme but later decides they want to join again, they can do so. The employer has to accept them back in, once in every twelve month period. If the worker still meets certain requirements then their employer will contribute too. If the worker stops paying a second time and then requests to join again within twelve months, the employer does not have to accept them the second time. But they can do so if they want.
Being automatically enrolled back into a workplace pension.
If a worker opts out or stops paying into the workplace pension their employer has a duty to automatically enrol them back into their pension scheme at regular intervals, usually every three years. This is to give those workers who have stopped saving into a workplace pension the opportunity to reconsider their finances and pension saving options. They can choose to stay in this time or opt out again.
Information in this article is based on our understanding of the relevant legislation at the time of writing [Aug 2017]. For further information please visit The DWP - Workplace Pensions website.