Auto-enrolment is a UK government initiative that requires all employers (with at least one member of staff) to automatically enrol eligible employees into a workplace pension scheme. Eligible staff are usually those aged between 22 and State Pension age, earning over £10,000 per year.
Employers must contribute at least 3% of qualifying earnings, while employees contribute up to 5% before tax, with government tax relief also added. These contributions are invested to build up employees’ retirement savings.
Workplace Pension Scheme Options
To meet auto-enrolment duties, employers can choose from a range of qualifying pension providers. Common options include NEST (set up by the UK government), The People’s Pension, and NOW: Pensions. All operate as defined contribution schemes. Employers with more complex needs may alternatively set up their own occupational pension scheme.
In most cases, employees can transfer other defined contribution pensions into their chosen scheme, or transfer out once contributions have stopped.
Key Considerations for Employers
Scheme choice – Compare the benefits of different providers or schemes. Some employers may use more than one, for example placing senior employees in an occupational scheme and contract staff in a master trust scheme such as NEST, The People’s Pension, or NOW: Pensions.
Budgeting – Pension contributions represent a material cost. Employers should plan whether contributions are based on qualifying earnings or full salary, and may need to adjust overall remuneration packages to absorb costs.
Administration – Payroll and HR systems must handle auto-enrolment, reporting, and contributions. Running both an occupational scheme and a master trust scheme may create additional admin.
Communication – Employee engagement is essential. Presenting pensions as part of the overall benefits package can improve recruitment and retention. Employers offering above-minimum contributions may also apply for a Pension Quality Mark (www.pensionqualitymark.org.uk).
Occupational Pension Schemes
Occupational schemes are typically defined contribution, though some defined benefit schemes remain. In a defined contribution scheme, retirement income depends on contributions and investment growth; in a defined benefit scheme, income depends on salary and service length.
If an employer goes out of business, pension funds are usually protected as they are separate from employer assets. In trust-based schemes, however, running costs may be taken from members’ pots if the employer can no longer fund them.
