Auto-Enrolment: A guide for employees and employers

Auto-enrolment is an important initiative for both employees and employers. For employees, it is vital they are given the opportunity to enrol on a company’s workplace pension. For employers, it is their legal responsibility to automatically enrol all eligible workers. This guide will explain why this is the case, along with highlighting the significance of auto-enrolment.

What is Auto-Enrolment?

Auto-enrolment, also known as automatic enrolment, is a government initiative that was first introduced alongside the Pensions Act 2008. This was done for one main reason: to combat against the lack of UK workers sufficiently saving enough money for retirement. By 2018, the initiative became mandatory for all companies to follow.

With auto-enrolment, every eligible employee is automatically added to a company’s workplace pension scheme. Rather than “opting-in”, which was how the old system functioned, employees have to “opt-out” if they’re not interested in joining the scheme. Opting-out has to be done within a month of being enrolled by the employer.

Due to this, pension contributions are automatically taken from your salary. Furthermore, employers will also contribute to your pension on your behalf.

Employer duties

An employer has a duty to comply with all auto-enrolment legislation. This includes automatically enrolling all eligible part-time and full-time employees. Those that are eligible meet the following criteria:

• Work in the United Kingdom
• Are between 22 years old and the State Pension age
• Are earning over £10,000 annually
• Are not already part of a different workplace pension scheme

If an employee is earning between £6,240 and £10,000 and they want to join a company’s pension scheme, the employer must agree to this – and that includes making contributions to their pension.

As for contributions, employers have to pay 3% on the “qualifying earnings” of an employee’s earnings. They can contribute more if they desire.

Employee rights

An employee has a number of rights under auto-enrolment legislation. While employees have to pay 5% of their “qualifying earnings”, HMRC provides 1% tax relief on these contributions.

Employees also don’t have to auto-enrol onto a pension scheme. Their rights allow them to opt-out if they decide it’s the best option for them. It is also recommended employees regularly review their pension arrangements to ensure they are getting the most from their workplace pension.

Impact on workplace pensions

Auto-enrolment has had a positive impact on workplace pensions. It has helped to significantly increase the number of people that are sufficiently saving for retirement, meaning they can have a better life post-retirement. Plus, with the added tax and employer contributions, employees are gaining more from their workplace pension plans.

There are also positives for employers. They can also gain tax relief from contributing to employee pensions.

Challenges and considerations

Auto-enrolment is not unanimously positive for both employees and employers. In fact, each side faces certain challenges they have to carefully consider.

For employees, they have to understand the possible impact of auto-enrolment on their take-home pay. With a portion of their wages going towards their pension, they have less immediate money to deal with their current bills and financial responsibilities.

For employers, they have the challenge of additional administrative work. They have to ensure all workplace pensions are sorted and organised correctly. This includes making sure all contributions are at the correct rate. This extra work is time-consuming and may require additional help to complete.

Conclusion

Auto-enrolment was an important step by the government to ultimately improve the livelihoods of those in retirement. However, while there are numerous benefits gained for both employees and employers, there are also plenty of things to consider for both sides when it comes to auto-enrolment.

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