What Is Auto-Enrolment Pension in the UK? Eligibility + Benefits

The auto-enrolment pension scheme in the UK provides employees with easy access to a workplace pension plan. 

It was rolled out in stages from 2012 to 2018 — starting with large employers and followed by medium and small employers. 

Since 2018, all UK employers have been legally required to auto-enrol eligible employees into a qualifying pension scheme. 

Let’s explore the UK’s automatic enrolment scheme in detail.

What Is the Automatic Enrolment Pension Scheme in the UK?

As per the auto-enrolment legislation, every UK employer (regardless of the number of staff) must auto-enrol eligible employees in a workplace pension plan and contribute to it.

Employees are also required to make contributions towards their pension plan, which the government then tops up in the form of tax relief. 

Moreover, the UK government has set lower and upper limits on all employee earnings, known as qualifying earnings, to calculate pension contributions for the auto-enrollment scheme. 

This band ranges between £6,240 to £50,270 a year. 

(We discuss contributions in detail later in the article.)

For auto enrolment, workers are classified into three categories based on earnings and age: 

• Entitled workers: Workers aged between 16-74 ordinarily working in the UK under employment contracts and earning less than the qualifying earnings, i.e., £6,240.

• Eligible jobholders: Workers aged between 22 and the State Pension age (66 as of 2024), having qualifying earnings.

• Non-eligible jobholders: These workers aren’t eligible for auto-enrolment but can opt-in voluntarily. This category includes workers who are either:

  • Aged between 16 and 74 and earn between £6,240 to £10,000 a year. OR

  • Aged between 16 and 21, or between State Pension age and 74, earning over £10,000 per year.

Employers must check which category an employee falls into and decide whether they qualify for automatic enrolment into a workplace pension scheme. 

How is the eligibility determined?

Let’s find out next. 

Who Can Qualify for Auto Enrolment Pensions in the UK?

Your employer must auto-enrol you in a workplace pension scheme if:

1. Your Employment Status Is ‘Worker’

You will be classed as a ‘worker’ if you meet these conditions:

• You have a written or unwritten contract to do work or provide services for a monetary reward or a benefit in kind.

• You have a limited right to subcontract your work, i.e., send someone to do the work for you.

• Your employer can provide work as long as your contract lasts.

• You’re not providing services or working for someone as a company, i.e., they are not your customer or client.

2. You’re Between 22 and the State Pension Age

Your State Pension age is when you can start receiving your State Pension. It may depend on your gender and when you were born, but it typically ranges from 66 to 68. 

You can determine your State Pension age with this calculator.

Here’s an interesting note:

To make auto-enrolment accessible to young adults, the government has introduced a bill to lower the auto-enrolment age from 22 to 18. If passed by the House of Commons and House of Lords, it will be effective around January 2025.

3. Your Annual Income Is £10,000 or More

You need to have an annual income of at least £10,000 — which equates to £833/month, £192/week, or £769 every four weeks — or you won’t qualify for auto-enrolment.

• If your annual income is below £10,000, you’re still entitled to enrol, but it won’t be automatic. 

• You can opt in as a ‘non-eligible jobholder’ if you earn between £6,240 and £10,000, and your employer must contribute. 

• If you make less than £6,240 annually (which is £520/month, £120/week, or £480 every 4 weeks), you can opt in, but your employer doesn’t have to contribute.

4. You (Ordinarily) Work in the UK

If your work requires you to be on location within the UK, you’re eligible for auto-enrolment. It doesn’t matter whether you take occasional trips outside the UK or are a UK national.

Does a significant part of your work happen outside of the UK?

You’ll need to determine if you’re considered to be working “ordinarily” in the UK. 

For example, seafarers or international aircrew may be considered as such despite spending much of their work time outside the UK.

It largely depends on whether you’re a UK resident and, if you are, where your employment base is. This is determined by looking at:

• Where you begin and end your workday.

• Where your headquarters are located.

• The currency in which you receive your salary.

• Whether you pay UK taxes and/or National Insurance contributions.

If you’re on offshore employment in the UK territorial waters, you’re also considered as ordinarily working in the UK.

When Does an Employer Not Have to Auto-Enrol Employees in a Pension Scheme?

Even if you meet all the above criteria, your employer wouldn't have to auto-enrol you into the pension scheme if:

• You had opted out of your employer’s pension scheme 12 months before your company’s staging date.

  • The staging date was a date set by the government by which an employer had to have a workplace pension scheme in place and auto-enrol all eligible employees.

• You’re quitting your job and have given notice of your resignation, or your employer has notified you that your employment will be terminated.

• You’ve received a winding-up lump sum payment after your workplace pension scheme was wound up, then resigned and returned to the same employer within 12 months.

• Your employment status is classified as “Director,” and you have at least one employee or staff member working for you. (If you do additional work unrelated to being a director, you may still be entitled to auto-enrolment.)

• You’re in a Limited Liability Partnership (LLP).

• You belong to an EU member state and are enrolled in an EU Cross-Border Occupational Pension Scheme. (UK residents on an EU cross-border scheme before Brexit should have been moved to a UK-based auto-enrolment scheme.)

• You have documents that indicate you have availed of the Lifetime Allowance protection.

  • The Lifetime Allowance protection limited the total pension benefits you could accumulate throughout your lifetime. It also included benefits obtained from workplace pension schemes. 

  • However, the UK government has abolished the Lifetime Allowance protection. It’s one of the pension reform measures in the government’s Autumn Statement 2023.

(Please refer to the FAQ section for more information on Lifetime Allowance abolition.)

Employer's Obligations in an Auto Enrolment Pension Scheme

A person is classified as an ‘employer’ in the UK if they have at least one employee working under them. 

Employers in the UK are responsible for ensuring that they comply with the auto-enrolment law and help their employees save for retirement. 

This automatic enrolment duty includes:

1. Enrolling Employees in a Pension Scheme

Two types of workplace pension schemes are available in the UK – defined contribution and defined benefit pension schemes. 

Employers must set up a workplace pension scheme and auto-enrol each eligible employee into the chosen pension plan. 

The day an employer starts their auto-enrolment duties, i.e., assessing staff eligibility and adding them to the workplace pension plan, is known as the ‘duties start date’.

Learn more about Workplace Pensions in the UK. 

Are you a UK employer planning to set up a workplace pension scheme?

Try Kota!. 

Kota is a simple digital pension platform that lets you provide a workplace pension scheme to your UK team within minutes and stay on top of your employer duties.

We've partnered with Smart Pension, a trusted pension provider in the UK, to help you set up auto-enrolment and manage pensions compliantly from anywhere in the world.

Kota lets you:

• Comply with the UK automatic enrolment laws and make a minimum contribution to your employee's pension pot.

• Delay auto-enrollments for a maximum of three months, with the option to establish automatic postponement for your team.

• Efficiently handle re-enrolments every three years based on how you make your pension contribution.

Join Kota to set up affordable and scalable workplace pension arrangements today!

2. Communicating with Employees

Employers must provide employees with all crucial information about the auto-enrolment scheme in writing no later than six weeks after the auto-enrolment duties start date. 

This information includes details about:

• How the scheme affects them. 

• Employee’s date of enrolment.

• The type of pension scheme they’re enrolled in.

• The pension providers, trustees, and managers of the scheme.

• Employer and employee contribution. 

• The opt-in, opt-out, and re-enrolment process.

3. Making and Deducting Contributions

Employees and employers must make minimum contributions towards the workplace pension scheme in auto-enrolment. (We’ll cover these contribution rates later in this article.)

The employer must ensure employee contributions are deducted from their payroll and added to their pension fund.

4. Maintaining Records

Employers must maintain accurate records of all auto-enrollment activities. These records can be used as proof by employers during compliance declarations.

Employers must maintain two types of records that should be kept for at least six years. They are:

• Records about Jobholders and Workers: This includes employee information such as their name, national insurance number, opt-in, and joining notice. 

• Records about the Pension Scheme: This includes information about the type of pension scheme offered by the employer and the name and address of the pension provider. 

5. Declaration of Compliance

Employers must inform The Pensions Regulator (TPR) once they have fulfilled their automatic enrolment duties. 

For that, employers must submit an online declaration of compliance on TPR's website within five months from their duties start date.

Can Employers Postpone Auto Enrolling Their Employees?

Sometimes, employers can postpone your automatic enrolment for up to three months. This usually happens if you're a short-term employee, like a seasonal worker.

Employers can postpone automatic enrolment in the following circumstances:

• Duties Start Date: Employers can delay enrolment from the date when their automatic enrolment duties officially begin.

• Employee's First Day of Employment: Enrolment can be postponed from the first day a new employee starts working for the company. For example, if you’re on probation.

• Employee Doesn’t Meet Eligibility Criteria: Employers can postpone enrolment until an employee reaches the required age and earnings level.

Your employer can also delay your auto-enrolment date for more than three months if they have chosen to offer a specific type of pension plan, such as a:

• Defined benefit pension: Your retirement benefits are predetermined based on your salary history and employment duration.

• Hybrid pension: You get mixed benefits from both defined benefit and defined contribution pension. 

If your employer chooses to postpone your enrolment, they must notify you with a proper explanation in writing.

What the Employer Can’t Do

Your employer can’t:

• Fire you from your job or discriminate against you for joining a workplace pension scheme. 

• Offer rewards during recruitment or suggest that you won’t get the job unless you opt out of the workplace pension plan.

• Force you or offer an incentive to opt out of the workplace pension scheme.

How Much Does the Employer, Employee, and the UK Government Contribute?

In an auto-enrolment pension scheme, both employees and the employer contribute towards the pension scheme. You also get contributions from the government in the form of tax relief. 

Under the auto-enrolment legislation (Pensions Act 2008), the government has set the minimum contribution levels at:

• 5% minimum for employees.

• 3% minimum for employers.

You can only pay the minimum contribution of 5% if you earn between £6,240 and £50,270 per year (for tax year 2024-25). This portion of your income is known as your 'qualifying earnings.'

Your qualified earnings can include the following:

• Gross salary or wages from overtime.

• Bonuses and commissions.

• Statutory sick pay, maternity, paternity, or adoption allowance.

Despite these limits, employers and employees can make higher contributions toward the pension fund if they wish to.

But look: 

Employers are not legally required to match employee contributions in the UK.

Your employer also doesn’t have to contribute towards your pension scheme if your income is equal to or less than:

• £520 a month.

• £120 a week.

• £480 over four weeks.

What Happens to the Auto Enrolment Pension Contributions?

Your employer is responsible for selecting a suitable pension provider to manage your pension contributions. 

The pension provider will invest your money into stocks and shares to grow your pension fund until you retire. Any growth within your pension fund is not subject to taxation, but it's important to note that the value of investments can rise and fall.

The final amount you receive at retirement depends on your total contributions and your assets' performance.

Can You Get Tax Relief on Your Pension Contributions?

If you’re enrolled in a workplace pension scheme, you get tax relief from the government when you make pension contributions.

There are two methods to get tax relief on your pension contributions:

• The Relief at Source: Your employer deducts your pension contributions from your post-tax income. While 80% of your pension contributions are taken from your salary, your pension provider reclaims the remaining 20% as tax relief from the government and adds it to your pension fund.

• The Net Arrangement Pay: You get tax relief immediately at the highest tax rate in the net pay method. Your employer will deduct pension contributions from your income before it’s taxed. This means you’ll only pay tax on your earnings minus your pension contribution. 

Is Joining an Auto Enrolment Pension Scheme Optional?

Joining an auto-enrolment pension scheme isn’t optional because employers must legally enrol each eligible worker into a workplace pension scheme.

However, you do get the option to opt in and out of their workplace pension scheme. 

You can opt out of your employer’s workplace pension scheme if you’ve been auto-enrolled into one by giving them an opt-out notice. 

Here’s how it works:

• You get a one-month window to decide whether to 'opt out’ or stay in the scheme. If you opt out, you must submit a valid notice to your employer.

• If you opt out within one month, your employer will refund any contributions you have made towards your pension saving. 

• However, if you opt out after one month, the contributions you've already made usually stay in your pension account.

Opted out but looking to rejoin the pension scheme?

No worries! 

Follow these steps:

• Request your employer to re-enrol you in the pension scheme. However, your employer might allow this only once every 12 months.

• Provide your employer with an opt-in notice. Once the employer receives this notice, they must arrange for the jobholder to become an active member of an automatic enrolment scheme from the enrolment date.

But look:

You can’t opt out of your employer's auto-enrolment scheme forever because even if you don't ask them to re-enrol you in a pension scheme, they are legally required to re-enrol you in a qualifying pension scheme every three years. This is known as re-enrolment.

Why You Should Join an Auto Enrolment Pension Scheme

Here are some reasons to join an auto-enrolment scheme instead of opting out:

1. Guaranteed Retirement Income

Automatic enrolment in a qualifying workplace pension scheme lets you make regular pension contributions towards your pension pot. 

As you contribute a portion of your salary towards your pension pot throughout your work life, you collect enough to sustain yourself in retirement.

Having a workplace pension arrangement is also essential because relying only on the new State Pension, which is just £221.20 a week in 2024-25, may not be sufficient to manage your retirement expenses.

2. Your Employer and the Government Contribute to Your Pension Fund

In an auto-enrolment pension scheme, your employer contributes towards your pension fund, and you get tax relief from the government.

Government and employer contributions are essential because they enhance your retirement savings, reduce your tax liability, and provide greater financial security in your retirement years.

3. Offers Greater Flexibility When You Move Jobs

Auto-enrolment makes it easier to switch jobs because your pension savings are independent of your employment.

When transitioning between jobs, your auto-enrolment pension savings move with you.

So, if your new employer offers a different pension scheme, you can contribute to the new plan while your previous pension fund continues to be invested as it was before.

13 FAQs About UK’s Auto Enrolment Pension Scheme

We’ll answer some common questions about auto-enrolment: 

1. Can I Be Auto-Enrolled in a Pension Scheme If I Have Multiple Jobs?

You can be enrolled in multiple workplace pension schemes if you work for more than one employer. 

Each employer will separately determine your eligibility to join their pension scheme (based on the eligibility criteria covered earlier in the article).

You will be automatically enrolled in the relevant workplace pension schemes if you are eligible for pensions with multiple employers. You can choose to opt out if you want.

2. What Happens If I am Not Eligible To Join the Auto Enrolment Scheme?

You can opt-in voluntarily if you’re not qualified to be auto-enrolled but still want to join a workplace pension scheme.

However, your employer may or may not contribute towards your personal pension pot, depending on whether you’re a “non eligible jobholder” or an “entitled worker.” 

• If You’re a “Non eligible Jobholder”: Your employer must contribute towards your pension fund at the minimum contribution level of 3%. However, they can increase the pension contribution if they want to. 

• If You’re an “Entitled Worker”: Your employer isn’t obligated to contribute towards your pension fund, but they can if they wish to.

3. Does Auto-Enrolment Apply to Self-Employed People?

Auto-enrolment in the UK doesn’t apply to self-employed individuals.

If you’re self-employed and wish to save for retirement, you'll need to make your own pension arrangements by setting up your own pension plans.

You can opt for:

• Personal pension plans

• Self-invested personal pension (SIPP)

• National Employment Savings Trust (Nest)

4. How Will the Auto-Enrolment Scheme Apply to Me If My Income Varies Each Payday?

Auto-enrolment is available for all employees, including temporary, part-time, and seasonal workers.

So, even if your income varies, your employer must enrol you in a pension scheme if you meet or surpass the age and income thresholds. 

Once enrolled, your employer will calculate your pension contributions based on your ‘qualifying earnings,’ i.e., an amount over £6,240 at each pay period.

This means that on some paydays, you might earn enough to make pension contributions; on other days, your earnings may be lower, and you won’t be able to make any contributions. 

5. ​​What Happens When My Earnings/Age Changes?

As per the UK auto-enrolment law, your employer must assess your eligibility when you join their organisation. 

Suppose you’re not auto-enrolled because you didn’t meet the eligibility criteria. In that case, your employer has to assess your eligibility every pay period (i.e., weekly or monthly, depending on your job) till your earnings increase above £10,000 a year.

Similarly, if you were under 22 when you joined the company and weren’t added to a workplace pension scheme, your employer will automatically add you to one when your age increases.

6. What Happens If I Can't Afford My Contributions?

If you can’t afford to contribute towards your pension fund, you can opt out of the scheme and rejoin later when your income levels increase. 

You can also talk to your employer about reducing your contributions. 

However, you can only reduce your contributions below the minimum 5% if your employer agrees to increase their contributions by more than the required 3% to make a total contribution of 8%. 

As the government has established minimum contribution thresholds, any contributions to the pension fund below 8% will not be considered.

7. What Happens If My Employer Doesn't Comply With the Rules?

If your employer doesn’t comply with automatic enrolment rules and legal duties, The Pensions Regulator (TPR) can take enforcement action against them, and they’ll have to pay a hefty fine. 

The Pensions Regulator (TPR) sends official notices to employers in case of non-compliance with automatic enrolment rules. 

If the issue persists, penalty notices may be issued, and the TPR can take legal action against them.

8. What Happens to My Auto Enrolment Pension if I Emigrate?

If you emigrate, you can keep your UK auto-enrolment pension under the same rules. 

You may also transfer it abroad to a Qualifying Recognised Overseas Pension Scheme (QROPS) to avoid tax penalties.

a. How to Access Your Pension from Abroad?

• Direct Access: You can get your pension payments into a UK bank account. Transfers to overseas accounts might incur fees and be affected by exchange rates.

• Through QROPS: Transferring your pension to a QROPS can simplify access in your new country, but check for compliance to avoid taxes. Ensure the QROPS is compliant to prevent hefty taxes. Be mindful of local taxes in your new country and check for any tax agreements that might prevent double taxation.

b. Do You Qualify for Tax Relief on UK Pension Contributions Abroad?

You're eligible for tax relief if:

• You’ve lived in the UK and paid taxes in the relevant tax year, or

• You’re a 'Relevant UK Individual'.

9. How Do Salary Sacrifices Affect Auto-Enrolment Contributions And Benefits?

Salary sacrifice lets employees swap part of their salary for non-cash benefits, like a higher employer contribution to their pension. 

This not only lowers the employee’s income tax and National Insurance contributions but also those of the employer. 

However, the employer must ensure that this setup meets the minimum contribution levels for auto-enrolment

It's also crucial that salary sacrifice doesn't cause the employee earnings to fall below the national minimum wage (£11.44 in 2024) or cause employees to opt out of the pension scheme. 

10. Can Employers Delegate The Process Of Automatic Enrolment?

Yes, employers can delegate the administration of automatic enrolment to third parties, such as payroll services, but remain legally responsible for compliance and duties.

Good news?

You can rely on Kota to ease your auto-enrolment duties while reducing administrative costs.

11. What Is the ‘Pot for Life’ Proposal and How Does it Impact the AE Scheme?

Introduced by the Economy 2030 Inquiry in late 2023, the "Pot for Life" proposal:

• Allows employees to choose their own pension provider instead of using the employer's choice.

• Enables employees to carry their pension pots from one job to another.

• Aims to streamline the pension system by establishing a single provider for a person's entire career, known as the ‘Lifetime Provider’ model.

But look:

The proposal goes against the auto-enrolment process, which places employees in their employer's default pension scheme.

Moreover, moving away from the employer’s scheme could lead to high costs and unexpected issues, possibly undoing the benefits of auto-enrolment.

As of May 2024, the proposal is still being debated and wouldn't affect the current AE scheme.

12. What Are the New Changes to the Pension Lifetime Allowance In The UK?

Starting April 6, 2024, the UK abolished the pension Lifetime Allowance, which previously capped tax-free pension benefits at £1,073,100. 

Instead, the UK government has introduced three new allowances:

• Lump Sum Allowance: Allows up to £268,275 of tax-free lump sums from pension pots. However, it could be different for people who had Lifetime Allowance protection.

• Lump Sum and Death Benefit Allowance: Set at £1,073,100, its covers specific lump sum payments including serious illness and certain death benefits.

• Overseas Transfer Allowance: Also £1,073,100, it’s applicable to pensions transferred to overseas schemes (QROPS), with potential charges if exceeded.

These changes offer more flexibility in managing pension withdrawals and could significantly impact your retirement planning.

13. What Is Contractual Enrolment and How Does it Differ From Auto Enrolment in the UK?

Contractual enrolment and auto-enrolment are two ways employees can be enrolled into a workplace pension scheme in the UK. 

The key differences are:

• Consent: Contractual enrolment requires the employee's consent, while auto enrolment does not.

• Opting-out: Employees enrolled contractually must opt out according to the scheme rules, while auto-enrolled employees have a statutory right to opt out.

• Administration: Contractual enrolment is easier for employers to manage, as they can enrol all employees rather than assessing each one.

• Postponement: Employers using contractual enrolment can postpone enrolling short-term or likely-to-leave employees.

• Information: Employers have lower obligations to provide pension information to employees under contractual enrolment.

Streamline the UK Auto-Enrolment Process With Kota

The UK introduced auto-enrolment to tackle the decline in workplace pension availability, ensuring that workers have the opportunity to save for retirement.

Since 2012, the automatic enrolment initiative has transformed pension savings, with 88% of eligible employees (20.4 million) actively participating in a workplace pension in 2022.

So, if you need to manage pensions for your UK team, use Kota. 

You can easily set up a workplace pension scheme that complies with the UK auto-enrolment law without the hassle of brokerage and administrative costs.