Pensions auto-enrolment – tips to ensure compliance

Posted: 10/08/2023

One area of pensions law which regularly troubles employers is auto-enrolment and the intricacies around compliance. On the face of it, auto-enrolment is simple - eligible workers need to be auto-enrolled. 

It is when you start to dig a little deeper that the potential pitfalls become more obvious. Falling foul of the statutory requirements can result in substantial financial penalties. It is crucial for employers to be aware of the requirements, and ensure that they fully comply.

Who needs to be auto-enrolled? Change is coming 

This is one of the primary questions an employer must consider. The answer, however, is expected to change in the not-too-distant future. A private members' bill (the Pensions (Extension of Automatic Enrolment No 2) Bill) would give the Secretary of State the power to alter the age and qualifying earnings limits, if passed. The government is in favour of lowering the auto-enrolment qualifying age from 22 to 18, and removing the lower qualifying earnings limit (currently £6,240). 
 
The impact of this would be:

• more workers qualifying for auto-enrolment; and 
• higher contributions where the employer pays contributions based on ‘qualifying earnings’.

These changes seem to be a compromise in terms of increasing pension provision, following concerns highlighted by the Work and Pensions Committee’s report last year, which showed that 60% of people are still at risk of missing out on adequate retirement provision. So far, the government has resisted a suggestion to consider whether the minimum of 8% of qualifying earnings facilitates adequate retirement provision, a concern which is only likely to grow as the cost of living continues to present challenges to individuals. 

The bill received a second hearing in the House of Lords on 14 July and now awaits a line by line reading at the committee stage, scheduled for 12 September.

Check that you are up to speed on compliance 

This checklist covers the key areas employers frequently grapple with, and can help to ensure that you are on top of your auto-enrolment duties:  

• What counts as ‘pensionable salary’ (ie what proportion of pay should the percentage contributions be based on)?
• Implementation of postponement – are you complying with the requirements?
• Interaction with salary sacrifice – if you offer salary sacrifice, a review is recommended to ensure compliance with:
  • HMRC requirements; and  
  • auto-enrolment requirements.
• Pension provision for directors – what are the director exceptions/discretions in relation to auto-enrolment? 
• Pension provision for executives in their own SIPP – have you checked to ensure you are complying with auto-enrolment and, importantly, that you are not exposing yourself to a potential auto-enrolment claim?
• Pension provision for overseas secondees and multi-jurisdiction workers – how does auto-enrolment apply to them?
• Pension provision for contractors – how might auto-enrolment apply to them?
• Setting up auto-enrolment for new offices in the UK – how do the duties apply to your workers?

If you require assistance regarding auto-enrolment (or any other pensions issues) please do get in touch with Alison Hills, head of the pensions team. 

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