Pension Auto-Enrolment Explained: Employer Duties & Contribution Rates

Auto-enrolment turned workplace pensions from something employees had to actively choose into something they’re enrolled into by default. For employers, it comes with clear legal duties, provide a workplace pension scheme, assess staff, and contribute towards it. Here’s how auto-enrolment works.

What auto-enrolment is

Auto-enrolment is the legal requirement for employers to automatically put eligible staff into a workplace pension scheme and contribute towards it, rather than waiting for employees to ask to join. It was introduced under the Pensions Act 2008 to tackle low pension saving rates, defaults work far better than opt-in choices for getting people to save.

Every employer with at least one member of staff has duties under auto-enrolment, there’s no small-business exemption based on headcount. Duties apply from the employer’s duties start date, the date they take on their first member of staff, rather than the staggered rollout dates used when auto-enrolment was first introduced between 2012 and 2018.

Who’s eligible

Staff must be automatically enrolled if they meet all of the following:

• Working in the UK
• Aged between 22 and State Pension age
• Earning more than £10,000 a year (the earnings trigger)

Staff outside this range, younger workers, those over State Pension age, or those earning less, aren’t automatically enrolled, but most can still ask to join, and the employer generally has to let them, sometimes with a matching contribution depending on their exact circumstances, as GOV.UK’s guidance on joining a workplace pension explains. The Pensions Regulator groups these staff into categories, non-eligible jobholders (who can opt in and are still entitled to an employer contribution) and entitled workers (who can ask to join a scheme but the employer isn’t required to contribute towards).

Types of qualifying scheme

A workplace pension only satisfies auto-enrolment duties if it’s a qualifying pension scheme. This can be an occupational pension scheme run through the employer, or a personal pension scheme arranged with an external provider. Many employers, particularly smaller ones, use NEST, the government-backed master trust set up specifically to give every employer free access to a qualifying scheme.

Most workplace pensions used for auto-enrolment are defined contribution schemes, where the eventual pension pot depends on how much is paid in and how the investments perform. Defined benefit pensions, which promise a specific retirement income based on salary and length of service, are less common now but some employers, particularly larger or longer-established ones, still run them.

Once enrolled, an employee becomes an active member of the pension scheme, meaning contributions are being paid in on their behalf, and the chosen pension provider handles the day-to-day administration of the pot. Some schemes calculate contributions on pensionable pay rather than the qualifying earnings band, which is a scheme design choice employers can make as long as it meets an equivalent minimum standard.

The minimum contribution: 8%

The minimum total contribution is 8% of qualifying earnings (earnings within a set band, not necessarily the full salary), split as:

The employee’s share includes 1% in tax relief, added automatically by the pension scheme, so the actual reduction in take-home pay is less than the full percentage might suggest. Employers can choose to contribute more than the 3% minimum, and some do as part of their benefits package.

Some employers offer contributions through salary sacrifice. The employee agrees to give up part of their salary in exchange for the employer paying that amount into the pension instead, which can reduce the National Insurance both the employer and employee pay, since the sacrificed amount isn’t treated as salary. It doesn’t change the total going into the pension, just how it gets there.

Opting out

Employees can opt out after being enrolled. If they do so within the opt-out window, any contributions already deducted are normally refunded. The key trade-off: opting out means losing the employer’s contribution entirely, effectively turning down money the employer would otherwise have paid in on the employee’s behalf. It’s worth employees understanding this before opting out reflexively. Anyone weighing up their options, including how a workplace pension fits alongside a personal pension or other retirement savings, can get free and impartial guidance through the government’s Pension Wise service.

Employer duties

Running auto-enrolment correctly involves ongoing duties, not just a one-off setup. The employer must automatically:

1. Assess staff on every payroll run, checking age and earnings against the eligibility criteria (people move in and out of eligibility as pay changes)
2. Enrol eligible staff into a qualifying pension scheme
3. Contribute at least the minimum employer share
4. Re-enrol staff who previously opted out, roughly every 3 years, giving them a fresh opportunity to join (they can opt out again if they wish). Employers choose their own re-enrolment date, within a window set by The Pensions Regulator around the three-year anniversary of their duties start date
5. Keep records of compliance, which The Pensions Regulator can request

Failure to comply can result in fines from The Pensions Regulator, this isn’t an area where informal handling is advisable. The Pensions Regulator publishes detailed guidance for employers covering each of these duties, which is worth reviewing directly for anything not covered here.

Changing jobs or becoming self-employed

Auto-enrolment duties sit with the employer, so a workplace pension doesn’t automatically follow an employee when they change jobs. Each new employer runs its own assessment and enrols the employee afresh if they’re eligible, meaning most people build up pension pots with several different providers across their working life. Self-employed people fall outside auto-enrolment entirely, since there’s no employer to enrol them, though they can still set up a personal pension and claim tax relief on contributions in the same way.

Running auto-enrolment alongside payroll

Because eligibility can change month to month as pay fluctuates, and because contributions, opt-outs, and re-enrolment all need to be tracked accurately, auto-enrolment is best handled as an integrated part of regular payroll, rather than a separate manual process. Our payroll service manages assessment, enrolment, contributions, and re-enrolment as standard, so employer duties are met without extra admin on your side.