Pensions
Under the Pensions Act 2008, every employer must comply with certain duties regarding workplace pensions.
Faced with an increasingly ageing population and concerns that not enough people are saving for retirement, the Government’s workplace pension reforms which came into effect from 1 October 2012 has been intended to get more people saving into a pension scheme. The intention is that by ensuring that eligible workers are automatically enrolled into a pension scheme, the default position if they do nothing is that they will be saving. Workers do not have to stay in a pension scheme. They can choose to opt out.
Automatically enrolling eligible workers into a qualifying pension scheme is just one of a number of responsibilities that employers will have. These responsibilities are broadly referred to as employer duties.
Many employers will be used to arranging some type of pension provision for their employees, even if only providing access to a stakeholder pension, but employment businesses need to be aware that employer duties will also apply in respect of the temporary workers they engage and supply to clients in addition to internal staff.
The Pensions Regulator (TPR) is responsible for enforcing the employer duties and has also compiled various interactive tools for employers as well as more detailed guidance covering all aspects of the employer obligations. We have provided an overview here of the employer duties and have included links to useful additional resources throughout.
To ascertain what duties are relevant to you and your business, use The Pension Regulator's 'Duties Checker'.
What's the latest update from the TPR ?
April 2020
The Pensions Regulator have provided updated guidance for:
- Assessing the workforce: How to Identify the different categories of worker (Detailed Guidance for employers)
- Having completed the assessment: Next steps (Detailed Guidance for employers)
- Pension schemes: Pension schemes under the new employer duties (Detailed Guidance for employers)
- Information to workers: The new duties (Detailed Guidance for employers)
- The different types of worker diagram (Detailed Guidance for employers)
April 2019
What is the history? How did we get here?
Automatically enrolling 'eligible jobholders' into a pension scheme, became a requirement for employers from October 2012. Each employer was given a staging date (the date from which their employer duties would start) and was determined by the size of the PAYE scheme. The largest employers, i.e. those with more than 120,000 in the PAYE scheme were given a staging date first and was then followed by medium and small employers. All staging dates ended on 01 February 2018 and by this time all existing employees were covered by the auto-enrolment scheme.
Overview: what am I required to do?
Employers will be required to:
- Identify whether a person is a 'worker'
- Automatically enrol eligible workers into a qualifying pension scheme
- Manage opt outs for workers who choose to opt out
- Facilitate opt in for qualifying workers
- Contribute to the scheme for eligible workers
- Provide specific information to different categories of workers
These are referred to as employer duties.
Please see: TPR guidance for further information.
Who do the employer duties apply to?
All ‘employers’ will be required to comply with the employer duties. To understand who is an ‘employer’ it is perhaps easier to start by explaining who a worker is.
A ‘worker’ is an individual who has entered into or works under either:
- contract of employment, or
- any other contract by which the individual undertakes to do work or perform services personally for another party to the contract.
An employer is anyone who employs a ‘worker’.
If you have employees (engaged under a contract of employment) the employer duties will apply to you in respect of those employees. Employment businesses typically engage temporary workers under a contract for services under which they provide their services personally. In most cases they are treated as workers for the purpose of the Working Time Regulations and National Minimum Wage legislation. If you supply temporary workers in this way then you will also need to apply the employer duties to these workers.
Do the employer duties apply to me when I supply limited company contractors?
Personal service companies:
In the majority of cases limited company contractors who work through their own companies will be the sole director and typically the only person in the company. A sole director of a company is not a worker for the purpose of the employer duties, so the auto-enrolment requirements will not normally apply to you for this type of engagement.
Umbrella company workers:
In the typical umbrella model, the umbrella company engages its staff using a contract of employment. In this case the umbrella company is the employer and will be responsible for applying the employer duties and adhering to the auto enrolment requirements for the umbrella company workers.
What are the different categories of workers?
The three categories of worker are:
1. Eligible jobholders
2. Non-eligible jobholders
3. Entitled workers
Who is an eligible jobholder?
- A worker aged between 22 and state pension age; and
- who works or ordinarily works in the UK under their contract;
- With annual earnings over the earnings trigger for automatic enrolment (see Pensions - how will I asses workers' earnings? below)
Employer duty: The employer must automatically enrol an eligible jobholder into a qualifying pension scheme and make a contribution.
Who is a non-eligible jobholder?
- A worker aged either between 16 and 21 or between state pension age and 74; and
- who works or ordinarily works in the UK under their contract;
- with annual earnings over the earnings trigger for automatic enrolment (see Pensions - how will I assess workers' earnings? below).
Or
- A worker aged between 16 and 74 and;
- who works or ordinarily works in the UK under their contract;
- With annual earnings between the lower earnings threshold and the earnings trigger for automatic enrolment (see Pensions - how will I assess workers' earnings' below for both)
Employer duty: The employer is not required to automatically enrol a non-eligible jobholder into a qualifying pension scheme, but must do so and must pay a minimum level of contributions if the non-eligible jobholder chooses to opt in. Information must be given to the non-eligible job holder about their rights to join a pension scheme, and their rights to opt in.
Who is an entitled worker?
- A worker aged between 16 and 74 and;
- who works or ordinarily works in the UK under their contract;
- with annual earnings below the lower earnings threshold (see Pensions - how will I assess workers' earnings?).
Employer duty: The employer must arrange access to a pension scheme if the entitled worker asks the employer to do so. This does not have to be a qualifying scheme and the employer is not required to make contributions.
Please see the: TPR guidance: Employers duties and definining the workforce (pages 12-34) for further information.
What contributions have to be made into the pension scheme?
Eligible jobholders who are automatically enrolled into a qualifying pension scheme and non-eligible jobholders who ask to be enrolled into a qualifying pension scheme will need to make contributions into the scheme. The employer will be responsible for making deductions from the jobholder’s pay and paying this into the pension scheme. The full contributions to be made into the scheme is 8% of earnings split between employer - who must contribute 3% and jobholder (worker) who must contribute 5%
Please see: TPR employers contributions calculator.
Who is entitled to be enrolled into a qualifying pension scheme?
Eligible jobholders will be entitled to be automatically enrolled into a qualifying scheme. Employers will have a period of one month which runs from the automatic enrolment date to achieve active membership for an eligible jobholder.
Additionally, non-eligible jobholders can ask their employer to enrol them into a qualifying pension scheme by serving an opt-in notice on the employer. The employer has one month from receipt of the notice to achieve active membership for the non-eligible jobholder.
Do I have to include a worker’s commission and overtime payments in assessing whether to automatically enrol them into a qualifying pension and make contributions into that pension?
This question needs to be addressed in two parts:
1) whether commission and overtime payments should be included in an employer’s assessment of whether to automatically enrol a worker; and
2) whether commission and overtime payments should be included in a worker’s pay when trying to calculate how much the worker and the employer should contribute.
1) Assessing a worker’s earnings for automatic enrolment:
Whether to automatically enrol a worker into a qualifying pension scheme is determined by the age and the qualifying earnings of the worker. Section 13 of the Pensions Act 2008 (and page 31 of the TPR guidance) states that ‘qualifying earnings’ is a reference to a specific set of earnings; these statutory figures are reviewed annually (the figures are available here) and are made up of any of the following components of pay that are due to be paid to the worker:
- salary
- wages
- commission
- bonuses
- overtime
- statutory sick pay
- statutory maternity pay
- ordinary or additional statutory paternity pay
- statutory adoption pay
Therefore where you are assessing your worker’s earnings in order to establish whether you are obligated to automatically enrol them into a qualifying pension scheme, you are required to include all the above components of pay in the earnings assessment, including commission and overtime payments.
2) Assessing a worker’s pay in order to calculate how much each party should contribute:
Once your worker has been automatically enrolled into a qualifying pension scheme, you are required to make deductions from your worker’s pay and make the appropriate contribution to the pension based on a percentage of the worker’s pensionable pay. The appropriate minimum pension contributions were being phased in over a five year period ultimately resulting (from 1 October 2018) in 5% from the worker and 3% from the employer. Members can check the minimum contribution percentages in the REC Legal Guide. These minimum contribution percentages apply to Defined Contribution pension schemes that have used the above definition of ‘qualifying earnings’ when defining pensionable pay. However other schemes may have incorporated a different definition of what amounts to pensionable pay (i.e. they may not have used the above ‘qualifying earnings’ definition), it is therefore advisable to check the minimum pension contributions with your chosen pension provider.
The Pensions Regulator (TPR) has produced guidance outlining the different pension schemes under automatic enrolment, which is available here.
The complete TPR guidance on automatic enrolment can be found here.
How will I assess my workforce?
Employers will need to carry out assessments of the workforce at different stages. The purpose of this is to identify who falls into each of the different worker categories so the employer can decide which employer duties to apply to each worker. The assessment dates include:
- The employer’s staging date;
- First day of employment;
- The date that a worker’s status changes (for example a worker who turns 22 could become an eligible jobholder);
- The date an opt-in or joining notice is received from a worker;
- The deferral date if the employer is using postponement.
At each of these assessment dates, employers will need to determine who is an eligible jobholder, who is a non-eligible jobholder and who is an entitled worker. The status of each worker will depend on their earnings and age.
In order to make an assessment, employers are required to:
- Assess the worker's age, I.e. which workers are aged between 16 and 74 and which workers are aged between 22 and state pension age
- Assess If a worker ordinarily workers In the UK under their contract - taking into account offshore workers, seafarer workers and International peripatetic workers.
- Assess worker's earnings and identify whether qualifying earnings are payable in the relevant pay reference period.
For more detailed guidance, please see the TPR guidance: the Assessing the workforce: How to identify the different categories of worker.
How will I assess workers’ earnings?
This process will be more straightforward for workers who have consistent regular earnings; for example a fixed annual salary divided into 12 or 52 equal payments. It will be straightforward for the employer to determine whether the worker will have passed the annual earnings threshold (see below) for automatic enrolment or the lower earnings threshold (see below). However the process is less straightforward for workers with fluctuating earnings such as temporary workers.
Employers need to look at the pay the worker receives during a pay reference period. The pay reference period is determined by the way that a worker is paid. Workers paid by reference to a week have a pay reference period of 1 week. If workers are paid by reference to a longer period then the pay reference period will be however long that is. For example a pay period of one month will apply for workers paid by reference to a month.
So employers need to work out each worker’s earnings in the particular pay reference period. The table below shows earnings expressed in terms of different pay reference periods.
Detailed guidance on pay reference periods can be found on the TPR guidance -Detailed guidance for employers: assessing the workforce (pages 22-42).
Earnings thresholds for tax year 2020-21
Pay reference period |
|||||||
2020 - 2021 |
Annual |
1 week |
Fortnight |
4 weeks |
1 month |
1 quarter |
Bi-annual |
Lower level of qualifying earnings |
£6,240 |
£120 |
£240 |
£480 |
£520 |
£1,560 |
£3,120 |
Earnings trigger for automatic enrolment |
£10,000 |
£192 |
£384 |
£768 |
£833 |
£2,499 |
£4,998 |
Upper level of qualifying earnings |
£50,000 |
£962 |
£1,924 |
£3,847 |
£4,167 |
£12,500 |
£25,000 |
Earnings thresholds for tax year 2019-20
Pay reference period |
|||||||
2019 - 2020 |
Annual |
1 week |
Fortnight |
4 weeks |
1 month |
1 quarter |
Bi-annual |
Lower level of qualifying earnings |
£6,136 |
£118 |
£236 |
£472 |
£512 |
£1,534 |
£3,068 |
Earnings trigger for automatic enrolment |
£10,000 |
£192 |
£384 |
£768 |
£833 |
£2,499 |
£4,998 |
Upper level of qualifying earnings |
£50,000 |
£962 |
£1,924 |
£3,847 |
£4,167 |
£12,500 |
£25,000 |
Employers will need to assess workers’ earnings in reference to the relevant pay reference periods for each worker. For example an employment business’ internal staff may be paid in reference to one month but the temporary workers that are supplied to clients may be paid with reference to one week.
Please see TPR Guidance on assessing your workforce.
How do I select a qualifying pension scheme?
Employers will need to select a pension scheme that complies with the statutory criteria. If you already have a pension scheme in place for existing workers and you want to use this to comply with the employer duties you will need to check whether the scheme meets the minimum criteria and what processes will need to be changed to comply with the employer duties. Advice should be sought from a qualified financial adviser.
Employers may want to consider using different schemes for different categories of workers. For example, if you supply temporary workers, you may want to use one type of scheme for your internal staff and another scheme for your temporary workers.
NEST (National Employers Savings Trust) is one of many pension schemes which is open to employers to use. NEST has been established by the Government and uniquely it has a public service obligation to accept any employers, in contrast to other private scheme providers which can be selective about which employers to accept. It has been designed with low/middle savers in mind.
Can I delay automatic enrolment?
Employers can choose to delay automatically enrolling eligible jobholders and instead rely on a three month waiting period.
This is referred to as postponement and it applies when the employer gives a notice to a worker or group of workers to tell them that automatic enrolment has been postponed to a later date which is referred to as the deferral date.
The deferral date can be up to 3 months from:
- The employer’s staging date (if applicable);
- The first day of the worker’s employment; or
- The day a worker becomes an eligible jobholder.
On the deferral date an employer will need to assess the worker to see which category the worker falls into. If a worker does not meet the qualifying criteria for an eligible jobholder on the deferral date, the employer will not need to automatically enrol the worker into a pension scheme. Instead the employer must continue to assess the worker. If at a later date the worker meets the criteria to become an eligible jobholder, the employer can in line with (c) above, use a further postponement notice to delay the deferral date.
An employer will need to continue to assess the worker and if he or she subsequently becomes an eligible jobholder, then the employer must apply automatic enrolment.
For further information, please see: TPR guidance on Postponement.
I want to use postponement to delay when I have to automatically enroll my workers. How do I work out when a temp starts or stops working for me if they work on and off assignments?
The automatic enrolment regime requires all employers to place their eligible workers into a qualifying pension scheme. Postponement is a tool which can be used by employers to delay automatically enrolling eligible jobholders into a qualifying pension scheme for up to three months. It can be a way to mitigate some of the costs involved in pensions automatic enrolment.
For more details, see the REC's full answer to this question. 'Pensions - I want to use postponement to delay when I have to automatically enrol my workers. How do I work out when a temp starts or stops working for me if they work on and off assignments?'
I am employing staff for the first time. Do I need to register my pension scheme with TPR?
Registration is a legal requirement for all employers to provide certain information to TPR outlining how they have complied with their automatic enrolment duties.
As part of the registration process you are required to account for every worker who was part of your PAYE scheme as of your duties start date. This will include providing information on the number of workers you have automatically enrolled as well as details of your chosen qualifying pension scheme. You are required to complete the registration process within five months of your duties start date, if you do not complete this process TPR can take action (including imposing fines) for your failure to comply with your employer duties. Under the Pensions Act 2008 employers are able to postpone automatically enrolling their workers for up to three months in certain specific situations, i.e from your staging date (if applicable) or form the first day of employment, or from the date a worker employed meets the criteria to be an eligible job holder. If you have postponed automatic enrolment you are unable to complete the registration process until the postponement period has ended, which may leave you with little time to meet the five months registration deadline. Given the potential fines for failing to register, it is important to begin the registration process as early as possible instead of waiting until after the postponement period has ended. The guidance from TPR suggests that employers should be completing the registration process as they go, in other words adding the required information over the full five month period as opposed to leaving it until the last month and rushing to meet the deadline.
The term registration has proven to be slightly deceptive as the obligation to register with TPR occurs after you have begun automatically enrolling eligible workers into a qualifying pension scheme, as opposed to at the beginning of the enrolment process. As a result of this TPR have decided to change the term ‘registration’ to ‘declaration of compliance’ to make it clear it should not be done at the outset, but within five months of your duties start date. Please see: the TPR website for further information.
What are my reporting duties?
The TPR state that to meet regulatory obligations, you as the employer are required to provide specific information to them regarding your pension scheme.
Aside from registering your pension scheme, you must also:
- provide a scheme return;
- report any breaches of the law
- report a notifiable event
- pay the levy
- provide information about any amendments to your pension scheme, or report any winding up of the scheme
Registration can be done via the TPR Exchange: Online service.
For further information on your reporting duties, please see: Reporting duties on the TPR
Do I have to provide access to a stakeholder pension scheme?
Since 8 October 2001 all employers with more than 5 “relevant employees” had to offer a stakeholder pension scheme to those employees. However, this obligation ceased on 1 October 2012 when the automatic enrolment pension reforms came into effect. Employers are now required to offer a workplace pension to their workers and automatically enrol those who meet the qualifying criteria, including agency workers.
Where can you get further advice on pension schemes?
- Detailed guidance from TPR
- Find a financial adviser at Unbiased
- Pensions and Lifetime Savings Association
- The Pensions Advisory Service
- NEST pensions glossary
What specific guidance is there about automatic enrolment for people who employ workers for their own care and support?
The Pensions Regulator has produced an Essential Guide for such individuals who employ carers, personal assistants, and nannies for example.
If you employ a personal assistant directly, you will need to automatically enrol them onto a qualifying pension scheme provided they meet certain criteria. For more information, please see: Employing carers FAQ's on the TPR website
If you are unsure of what you need to do as an employer, follow the steps in The Pension Regulator's Duties Checker.
How does automatic enrolment apply to directors?
There are different provisions in place for company directors (in this regard a director is a person who holds office as a director as opposed to someone who is a director in name/title only).
If a company has only one director and no other employees, the director is not a worker for the purpose of automatic enrolment, meaning that the company will not have any automatic enrolment duties. This will be the case regardless of whether that one director has a contract of employment with the company or not.
If a company has more than one director and they do not have contracts of employment with the company, then the company will not have any automatic enrolment duties as none of the directors are workers for the purpose of automatic enrolment.
If the directors do have contracts of employment with the company they will be workers for the purpose of automatic enrolment.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.