Useful Information
Automatic Enrolment
The Government’s initiative to encourage people to save for their retirement resulted in the introduction of automatic enrolment. This means that employers must automatically enter their employees into a qualifying pension scheme when their employment starts, or after a waiting period of up to three months. An employee can then opt out if they do not wish to be a member of the scheme, but will be re-enrolled automatically approximately every three years.
Automatic enrolment currently applies to all workers who:
- are not already in a workplace pension scheme;
- are aged between 22 years and State pension age;
- earn more than the minimum earnings threshold of £10,000 a year; and
- work in the United Kingdom.
For defined contribution (DC) pension schemes that are used for automatic enrolment, the Government has set a minimum level of contributions that must be paid towards the member’s pension. The contributions are a percentage of the employee’s qualifying earnings, which are annual earnings between £6,240 and £50,270 (for the 2024/25 tax year). The minimum level of contributions that must be paid is 8% of qualifying earnings in total, of which at least 3% must be paid by the employer.
If they wish, employers may instead choose to meet alternative minimum contribution requirements (again, set by the Government), which are intended to allow for definitions of pensionable pay that are not consistent with qualifying earnings.
The Government has indicated that it intends to implement changes to automatic enrolment at some point in the future which includes removing the qualifying earnings lower limit (so that contributions to money purchase schemes will be calculated from the first £1 of earnings) and lowering the minimum age for automatic enrolment from 22 to 18. These changes are still subject to consultation and a proposed timescale for implementation is yet to be announced.
The National Employee Savings Trust (NEST)
If an employer does not have a qualifying pension scheme in place, they can adopt the Government's scheme, known as the National Employment Savings Trust, or NEST.
NEST, which provides an opportunity for people to contribute into a high-quality, low-cost savings vehicle, was introduced in 2012. The minimum contributions under NEST are as set out above. Employees are required to make up the difference between the minimum employer contributions and the total minimum contribution. Employers may pay more than the minimum specified, in which case employees' contributions can be lower to meet the overall minimum total.
Unless people are already in an employer’s pension scheme that is of the same standard as NEST, or choose to opt out, all employees will automatically be enrolled.
For more information please see NEST’s website at www.nestpensions.org.uk.