Pensions - Employer Obligations

This Fact Sheet summarises the main legislative provisions requiring Employers to provide access to certain pension arrangements.  It does not cover the detailed aspects of the rules under which any pension schemes operate, nor does it provide any form of financial advice.

Auto-enrolment requirements

All employers are required to automatically enrol "eligible jobholders" in a workplace pension scheme that meets certain qualifying criteria. This is a statutory requirement which is rigorously enforced by the Pensions Regulator. The Regulator has extensive powers to investigate and to fine non-compliant Employers, as well as in extreme cases imprison Company directors.

This Scheme was set up by the government in response to increasing concerns that a large number of individuals were not saving enough for their retirement. With additional pressures being placed on the state pension there is concern about how individuals will be able to afford to live during retirement. This is the reason why it was set up on an auto enrolment basis; the provisions of the Scheme are designed to ensure that as many individuals as possible are enrolled and remain enrolled.

An eligible jobholder is someone who:

• Works (or ordinarily works) in the Great Britain under a contract. This will include temporary workers. The definition of "jobholder" also includes directors who are employed under a service contract; non-executive directors will therefore not automatically be covered; and
• Is aged at least 16 and is under state pension age; and
• Is paid "qualifying earnings" by an employer in a relevant 12 month pay reference period. Earnings includes bonuses, overtime and statutory maternity, paternity or adoption pay. The earnings trigger is currently set at £10,000 per annum and this will is reviewed annually by Government.

Non eligible job holders are those who do not meet this criteria.

An eligible jobholder has the right to opt out of his employer's scheme, but he/she will be automatically re-enrolled every three years. Employers are prohibited from inducing existing workers or prospective workers to opt out of auto-enrolment at any time.

The processing requirements, which employers are required to comply with are as follows:

• monitor all non-enrolled workers on a payroll period by payroll period basis to check whether they have become eligible jobholders as their classification may change from time to time due to crossing age thresholds or earnings thresholds, and take the appropriate actions that arise as a result;
• provide a workplace pension scheme for "entitled workers" (those who do not have qualifying earnings, but who otherwise meet the criteria for eligible jobholder) who wish to join, but the Employer will not be required to pay employer contributions in respect of these persons;
• provide an automatic enrolment scheme for all non-eligible jobholders who wish to opt-in (unless they are already a member of a qualifying scheme) by providing their Employer with notice of this, but the Employer will not be required to make any contributions in respect of these persons;
• automatically enrol all eligible jobholders into a qualifying scheme on commencement of employment, and the Employer will be required to pay at least the statutory level of employer contributions in respect of these persons;
• provide all entitled workers, non-eligible jobholders and eligible jobholders with prescribed information about their workplace pension schemes, their rights and options, within prescribed deadlines, including informing all eligible jobholders that:
  • they have been automatically enrolled; and
  • they have the right to opt out if they want to do so within a prescribed opt-out window (one calendar month).
• provide the Pensions Regulator with a declaration of compliance, along with details of the qualifying scheme and the number of people that have been automatically enrolled.

Workers have the right not to suffer any detriment in their employment because of their employer's breaches of the above regime and are entitled to bring proceedings in the employment tribunal.

Further information

The Pensions Regulator (https://www.thepensionsregulator.gov.uk) has further information and guidance regarding auto-enrolment. 

Public Sector Pension Schemes

Employers who enter into contracts to provide services to public sector entities may be required under the terms of the contracts to provide access to the Local Government Pension Scheme, the National Health Service Pension Scheme, or one or more of the Civil Service Pension Schemes (or in very rare cases a replacement "broadly comparable" pension scheme). The obligation to make this a term of the contract rests with the public sector entity, but nevertheless is usually inescapable for the contracting Employer. Access to the public sector pension schemes may be required for employees of the public sector entity which transfer to the Employer under TUPE, but can extend in certain circumstances to new employees engaged in the services for the public sector entity as well. These are very complex situations in which specialist legal advice should be sought.

Replacement Pension Schemes on a TUPE transfer

Where there is a transfer of a business subject to TUPE, any employees employed in the business will transfer with the business on their existing terms of employment. This includes pension entitlements. However, any benefit under an occupational pension scheme that relates to old age, invalidity or survivors' benefits will not transfer to the buyer/transferee under TUPE.

On transfer, the receiving employer is required to set up a replacement pension arrangement. The replacement pension requirements for TUPE transfers are complex situations in which specialist legal advice should be sought.