Pensions: what you need to know about assessment and enrolment

September 11th – 15th is Pension Awareness Week. To mark this occasion, we provide a simple overview on what’s required to assess and enrol your employees into a workplace pension scheme.

Automatic enrolment pension schemes were introduced at the beginning of October 2012. Starting with larger businesses, automatic enrolment was rolled out in phases. Now all eligible employees have to be automatically enrolled into the workplace pension scheme, while non-eligible and entitled employees are able to opt in if they want to. Employers can postpone enrolment into the workplace pension scheme up to a maximum of three months.

For new employers, the automatic enrolment duties start date begins from the start date of their first paid employee.

Assessing your employees

Employees must be assessed each time your payroll is processed. These ongoing assessments ensure that eligible employees are enrolled in your workplace pension scheme correctly. When your employees are assessed, they will fall into one of the categories below. (No matter what category they fall into, they should ordinarily work in the UK.):

Eligible

An employee is classed as eligible if they:

  • are aged between 22 and state pension age.
  • earn £10,000 or more per annum (£192 per week/£833.33 per month).

Eligible employees must be automatically enrolled into the workplace pension scheme in the assessed pay run, or once any applied postponement has ended. If an eligible employee opts out of the pension scheme within one month of being enrolled, their contributions will be refunded in the next pay period.

Non-eligible

An employee is classed as non-eligible if they:

  • are aged between 16-21.
  •  are of state pension age – 74.
  • earn £10,000 or more per annum (£192 per week/£833.33 per month).

Or, if they:

  • are aged between 16-74.
  • earn between the lower earnings threshold* and £10,000 per annum.

Non-eligible employees do not need to be automatically enrolled in a pension scheme. However, they can opt into the workplace pension scheme if they want to. If an employee opts into the pension scheme, you must start making contributions for them from the next available pay period.

*The lower earnings threshold is £6,240 for the 2023/24 tax year.

Entitled

An employee is classed as entitled if they:

  • are aged between 16-74.
  • earn less than the lower earnings threshold.

Entitled employees do not need to be automatically enrolled. However, they can join the pension scheme if they want to. If an employee joins the pension scheme, the employer is not required to apply employer contributions, but they can choose to at their own discretion.

Options for pensionable earnings and percentage contributions

Pension providers offer a range of options for pensionable pay, but the main options employers tend to go for are:

  • Basic pay — salary or basic hours only.
  • Total earnings — all earnings paid within that pay period.
  • Qualifying earnings — all earnings between £120 and £967 per week/£520 and £4,189 per month.

The current minimum for total contributions is 8%, of which employers must contribute a minimum of 3%. If an employer contributes the minimum 3% then employees must contribute 5% to make up the difference.   An employer can contribute more than the minimum percentage to reduce what the employee needs to contribute. Both employees and employers can increase these percentages if they want to.

Understand the tax treatment

Tax treatment for workplace pension schemes differ between pension providers. It’s important to understand the tax treatment to ensure you set up the pension correctly in the payroll.  The two main tax treatments are:

  • Relief at source — contributions are taken after tax. The pension provider claims 20% tax relief back from HMRC to add into the employee’s pension pot.
  • Net pay arrangements — contributions are taken before tax, which gives the employee the tax relief within the payroll.

The table below shows the difference between relief at source and net pay arrangement based on pensionable earnings of £1,000.

  Relief at SourceNet Pay Arrangement
Pensionable earnings£1,000  
Employee Contributions5%£40£50
Employer Contributions3%£30£30
Total through the payroll £70£80
Tax Relief claimed by pension provider £10 
Total in pension pot8%£80£80

Re-enrolment — when to reassess employees

Every three years from your duties start date, you’re required to reassess employees. Your new duties start date would automatically be set to three years from your previous enrolment date. However, you can enrol employees three months before this, or three months after. Whichever date you choose within the six-month window will become your new duties start date.

Any employees who opted out of your workplace pension scheme more than 12 months before your re-enrolment date will be enrolled back into the pension scheme. Once you’ve completed this assessment and enrolment of employees, you’ll be required to notify The Pension Regulator by completing the pension re-declaration. This declaration must be completed (even if you have no staff to re-enrol), and filed no later than five months after your re-enrolment date.

If you have any pension related questions, please contact us on payroll@ct.me or visit the CT: Payroll page for more information.

Author: Charlotte Walker, CT: Payroll Associate