Your pension responsibilities under the new auto-enrolment regime
HR Dept
A week does not pass without it being used to commemorate or highlight something! Well, later this month (29th September to 3rd October) it is Pensions Awareness Week.
Pensions are a serious business. Not only do they underpin how most workers enjoy retirement; but they are also hard earned throughout careers, through deductions from payroll and employer contributions from you every month.
As such, there are complex rules surrounding them. Soon, the rules most pertinent to you as an SME employer are likely to be the auto-enrolment rules.
What is auto-enrolment?
You have probably heard about auto-enrolment (My Future Fund) in the news: it is new legislation due to come into effect on 1st January 2026. Rather than requiring workers to actively choose to save into a pension, the central idea is that they would automatically be placed into one and they would need to actively choose not to, if they wanted to.
It is a subtle shift that has been a remarkable success in other jurisdictions. For example, in the ten years after it was introduced in the UK, yearly private sector pension saving rates went up about 50% from approximately £40 billion to about £60 billion.
Employer responsibilities under auto-enrolment
So, in the spirit of the upcoming Pensions Awareness Week let’s highlight what your main responsibilities under auto-enrolment will be.
Setting up and enrolling staff
The government’s auto-enrolment pension is called My Future Fund.
The idea is that most staff are eligible to be enrolled, with the criteria being they:
· Are classed as employees
· Are aged between 23 and 60
· Earn at least €20,000 a year
A body called the National Automatic Enrolment Retirement Savings Authority (NAERSA) will determine the eligibility of employees on probation, work part time or who are casual workers.
Employees who earn below the threshold can choose to opt in anyway, should they wish.
If you already have a pension scheme for some or all staff, this can continue for them.
How much is paid in auto-enrolment
Initially, for the first three years you and your employee will each pay 1.5% of their gross income into the pension, with the government adding 0.5% (a tax relief rate of 33%). Over subsequent years, the rates will gradually rise until from year ten you and your employee will pay 6% each and the government 2%.
Communicating with staff about auto-enrolment
It is important to keep your employees informed about their pension. This includes now, in the months leading up to auto-enrolment’s launch, when there is an expectation that you will be corresponding with staff so they understand the scheme and their options before it commences.
You will also need to review your employment contracts.
What if they opt out?
Once automatically enrolled, employees can opt out after six months of participation. When they do this, they will receive a refund of their own contributions, with the employer and government contributions remaining in their retirement pot. They also have the option to pause their own payments for up to two years.
If employees opt out of the pension scheme, you must opt them back after two years, informing them that you are doing so. They can also opt back in voluntarily after six months.
Choose an expert partner
With so much to get right, and high stakes if you get it wrong, consider outsourcing your auto-enrolment responsibilities to an expert. This means that you can breathe easy knowing that it is all being done correctly and that when opt ins and opt outs arise, they are taken care of.
Payroll, communications, employment contracts, we have an expert and cost-effective solution for delivering auto-enrolment to SME businesses. If you would like to find out more, please get in touch.
