Kate Brooks
Partner, Solicitor & Head of Employment/HR Services
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Date Published:24 Feb 2017 Last Updated:21 Jul 2021

How much will pension auto-enrolment cost my business?

Employment Law Advice

By 1 February 2018 all employers must automatically enrol eligible workers into a pension scheme unless they are already a member of a qualifying pension scheme.

Are your workers eligible? They must meet three requirements:

  1. Be aged at least 22, but below state pension age;
  2. Earn more than £10,000 in the 2016/17 tax year (this figure is reviewed annually and is inclusive of any additional payments such as bonuses, overtime etc.); and
  3. Work or ordinarily work in the UK under a contract.

Please note that workers who are not eligible may still have a right to opt into a pension scheme.

A worker can opt out by giving written notice within one month of either becoming a member or the date they were given the enrolment information. A worker can change their mind and re-apply but this is limited to once per 12-month period.

How much will you have to pay?

There is a requirement to pay mandatory minimum contributions which are as follows:

Period Minimum employer contribution Total minimum contribution
Staging date to 5 April 2018 1% 2%
6 April 2018 to 5 April 2019 2% 5%
April 2019 onwards 3% 8%

In order to prepare your business for the financial implications, we would suggest that you prepare for a 100% acceptance rate for auto-enrolment take up.

What steps do you need to take?

  1. Check whether you have a duty to comply.
  2. Check your staging date.
  3. Choose an eligible pension scheme or check that your existing pension scheme meets the requirements.
  4. Nominate a point of contact in the business to deal with the regulator to keep a full record.
  5. Write to staff within 6 weeks of your staging date. You must also provide the pension scheme administrator with certain information regarding your enrolled workers within 6 weeks of their enrolment date.
  6. Declare your compliance to the Pensions Regulator online within 5 months of your staging date.
  7. Check your employment contracts. These may need amending to provide for the pension changes.
  8. Ongoing duty. Re-enrolment occurs every three years when eligible workers will have the option to opt-out.
  9. Contact the Pensions Regulator to clarify your position if you have any about your obligations. They have also published a range of materials with useful information about auto-enrolment.

Employment protection

It will be unlawful to ask job applicants at interview whether they plan to opt out of auto-enrolment and also to offer financial inducements for opting out of scheme membership.

Penalties for non-compliance

The Pensions Regulator may intervene and require certain steps to be taken or levy financial penalties, for example if you haven’t registered with the regulator within 5 months of your staging date.

Currently, workers will not be able to bring claims in employment tribunals for failure to comply with auto-enrolment and minimum contribution duties. However, an unfair dismissal claim by an employee in consequence of non-compliance or a claim by a worker that they have suffered detriment arising from breach of the employer duties will be actionable in the tribunal.

How can Ellis Jones help?

  1. We can answer any concerns you have regarding auto enrolment.
  2. We can assist you in communicating the changes to your staff and deal with any queries or concerns that are raised.
  3. We can assist in identifying which workers are eligible and advise on their employment status.
  4. We can review your existing employment contracts to ensure they are compliant or help you to implement contracts if you don’t already have them in place.

If you have any queries regarding your auto-enrolment obligations please contact our employment team at employment@ellisjones.co.uk or 01202 636210.