All employers in the United Kingdom are required by law to automatically enrol eligible workers in a pension scheme.
Employers may use an existing or new occupational pension scheme or personal pension scheme, provided the scheme meets certain statutory requirements.
Once auto-enrolled, a worker will be free to opt out of the scheme. But while they remain an active member, their employer will be required to pay a minimum level of pension contributions.
Action Points
A. We issue a contract of employment to new employees which contains a deferment clause:
‘For all qualifying employees the automatic enrolment date is deferred to the 28th of the second month after the commencement of employment date. On the deferred date you will be automatically enrolled if you qualify as an eligible jobholder. In the mean time you have the right to opt into or join the auto enrolment pension scheme subject to eligibility and can do so by giving us a signed, written notice.’
B. On the 28th of the second month after commencement of employment the employee is auto enrolled into the People’s Pension. This is done by our payroll and should happen automatically.
C. On or shortly after the 28th of the second month after commencement of employment we send the employee ‘2021.03.25 SJS TEMPLATE Letter to New Joiner re Auto Enrolment’ linked >>here<<.
The employee then receives an information pack from People’s Pension which explains what they must do to opt out.
If the employee does not opt out, we make pension contributions as per the contract.
If the employee choses to opt out, we are notified by People’s Pension.
If an employee then wishes us to contribute to a personal pension scheme that meets certain statutory requirements, we must ask them to obtain a letter from the pension company confirming the relevant pension is auto enrolment compliant.
Here is what a personal pension provider typically needs to confirm to demonstrate compliance:
- Certification of Minimum Contribution Levels: The provider must confirm that the scheme meets the minimum contribution levels required by law. As of the last update, this is a total minimum contribution of 8% of an employee’s qualifying earnings, with at least 3% coming from the employer.
- Qualifying Scheme Criteria: The provider must confirm that the scheme is a qualifying scheme for auto-enrolment purposes. This means it must be accessible to all eligible jobholders and calculate contributions based on a band of earnings.
- Tax Relief Method: The provider must confirm the method of tax relief applied to employee contributions. This could be the relief at source or the net pay arrangement. Relief at source applies tax relief at the basic rate to employee contributions, regardless of whether the employee pays tax, whereas the net pay arrangement deducts contributions before tax.
- Opt-Out Process: The provider must detail the process for employees to opt out of the scheme and confirm that it allows for a full refund of contributions if the opt-out occurs within the specified opt-out period.
- Governance and Protection: The provider must confirm that the scheme offers the necessary governance to protect members’ benefits and rights, including the right to transfer pension pots and protection against unfair treatment.
- Record-Keeping and Reporting: The provider must confirm their processes for keeping accurate records of enrolment, contributions, and opt-out requests, as well as their capability to report this information to the employer and to regulatory bodies as required.
- Communications: The provider must confirm that they will supply the necessary information to employees about their auto-enrolment, including details about the scheme, how and when contributions are made, their rights under the scheme, and the benefits of staying enrolled.
- Regulatory Compliance: Finally, the provider must confirm that the pension scheme complies with all regulatory requirements set by the Pensions Regulator and other relevant bodies, ensuring it is fit for purpose as an auto-enrolment scheme.