Frequently used terms
Assessment (pension schemes)
1) Evaluating your existing scheme to make sure it ‘qualifies’ as a QWPS and can be used for auto enrolment purposes. 2) Evaluating new schemes to select the best one for you and your staff. 3) Evaluating the ongoing performance of either your existing or new scheme.
1) Carrying out a brief, pre-planning assessment of your workforce to informally categorise each worker and determine the extent of your auto enrolment duties. 2) Formally assessing your workforce on your staging date leading to specific actions having to be carried out, eg: enrolling eligible jobholders into your QWPS.
As an employer you need to keep and maintain accurate records relating to workers and jobholders and the QWPS itself. Records have to be kept for a minimum of six years with the exception of those relating to ‘opt-outs’ which must be kept for four years.
Automatic enrolment requires every employer to formally assess their staff and automatically enrol any eligible jobholders they employ into a qualifying workplace pension scheme (QWPS).
Auto enrolment legislation requires employers to put any eligible jobholders they employ back into their QWPS if they’ve opted out or left the scheme. Automatic re-enrolment happens every three years: it means you must re-assess any member of staff who opted out or left your QWPS and, if they qualify as an eligible jobholder, you must automatically re-enrol them back into the scheme. If they still don’t want to be a member they will have to opt out again.
The three different categories of worker as defined by auto enrolment regulations: ‘eligible jobholders’, ‘non-eligible jobholders’ and ‘entitled workers’. Auto enrolment legislation gives different statutory rights to each category. For more information, please see our information sheet: Auto enrolment: worker classification.
Ceased active membership
Any member of staff has the right to leave your QWPS at any time and for any reason. If they ask to leave within a month of being auto enrolled they are deemed to have ‘opted out’ but if they leave after that they ‘cease active membership’.
The Pensions Act 2008 specifies that a minimum total contribution has to be made to the pension scheme. Employers are also legally required to make a minimum contribution with the balance being paid by the jobholder. The minimum total and minimum employer’s contributions are based on the jobholder’s qualifying earnings and are reviewed by the Department of Work and Pensions (DWP) on an annual basis. For more information, please see our information sheet: Auto enrolment: contributions.
Declaration of compliance
Every employer has to submit a declaration of compliance to The Pensions Regulator providing information about how they’ve complied with their auto enrolment duties. The declaration is a secure, online service accessed via the Government Gateway and has to be submitted within five months of the employer’s staging date. You must re-declare compliance every three years (see Re-declaration of compliance).
Defined benefit (DB) pension scheme
‘DB’ pension schemes promise a specific (defined) income (benefit) in retirement. The value is based on how many years of service the person has with their employer and the salary they earned with them. It tends to be used by large employers or public sector organisations and is sometimes referred to as a final salary scheme.
Defined Contribution (DC) pension scheme
‘DC’ pension schemes are those where the person builds up a ‘pot’ of money that can be used to provide an income in retirement. The income received depends on a number of factors including the amount that has been paid into the scheme (contribution) and the performance of what it has been invested in.
The last day of the postponement period. If you have postponed automatic enrolment of any of your staff you must formally assess them on the deferral date and if they qualify, you must enrol them into your QWPS immediately.
Earnings trigger (for auto enrolment)
The earnings threshold above which, when combined with age criteria, a person qualifies as an eligible jobholder. The auto enrolment earnings trigger is currently £10,000 per year (tax year 2020-21).
Any worker who earns more than the auto enrolment earnings trigger of £10,000 per year (tax year 2020-21) and is aged between 22 and State Pension age is classified as an ‘eligible jobholder’ and qualifies for (mandatory) automatic enrolment.
Enrol (into a pension scheme)
Once you have formally assessed your staff they must be enrolled into your QWPS by sending your pension provider the information needed to make them active members. You have six weeks from your staging date to do this.
Any worker who earns less than the ‘lower level of qualifying earnings’ threshold (£6,240 per year in tax year 2020-21) does not qualify for auto enrolment or have the right to opt in, but they are entitled to ask you to enrol them into a pension scheme. This does not have to be the QWPS and you are not obliged to make employer contributions.
Auto enrolment is not a voluntary scheme, it’s a legal requirement every employer must comply with. The Pensions Regulator is responsible for compliance and there are serious fines for not complying with the obligations and duties expected.
Pension schemes are subject to stringent legal requirements about how they are run and administered. The trustees of the pension scheme are responsible for governance; it is their legal duty to protect their members’ interests and provide good-quality pensions.
Join (right to)
Entitled workers, ie: those aged between 16 and 74 and who earn less than the ‘lower level of qualifying earnings’ (£6,240 per year in tax year 2020-21) have the right to ‘join’ a pension scheme. The scheme does not have to be the QWPS set up for auto enrolment and employers don’t have to make an employer’s contribution.
Automatic enrolment is a key provision of the Pensions Act 2008 and came into effect on 1 October 2012. Apart from making auto enrolment a statutory requirement, the act also gave functions to The Pensions Regulator to maximise compliance with the act’s auto enrolment objectives.
Minimum requirements (QWPS)
To be considered a qualifying workplace pension scheme (‘QWPS’), a pension scheme must meet ‘minimum requirements’ set by the act. These vary depending on whether the scheme is a defined benefits (DB), defined contribution (DC) scheme or stand-alone scheme.
Any jobholder aged between 16 and 74 who earns more than the ‘lower level of qualifying earnings’ (£6,240 per year in tax year 2020-21) but less than the ‘auto enrolment earnings trigger of £10,000 per year (tax year 2020-21), or any jobholder aged between 16 and 21 or State Pension age and 74 who earns more than the ‘auto enrolment earnings trigger of £10,000 per year (tax year 2020-21), is classed as a ‘non-eligible jobholder’. Although they do not qualify for auto enrolment, they do have the right to ‘opt in’ to the QWPS.
One Financial Solutions
An independent firm of financial advisers who can help you plan and implement everything necessary to ensure you comply with auto enrolment legislation and fulfil your legal obligations. Please call us on 020 3714 9565 for a confidential discussion about how we may be able to help you.
Non-eligible jobholders have the right to ‘opt in’ to your QWPS under the same terms and conditions as those who qualify for mandatory automatic enrolment. This means that both they and you, the employer, will have to pay contributions into the scheme.
Eligible jobholders, ie: those who qualify for auto enrolment, are automatically enrolled into your QWPS: it’s mandatory, they don’t have a choice. If they don’t want to be a member of the scheme they can ‘opt out’ and have one calendar month in which to do so. A valid ‘opt-out notice’ has to be completed and a series of statements and warning declarations signed.
The one-calendar month period following an eligible jobholder’s auto enrolment date in which they can choose to opt out of the QWPS.
The Pensions Regulator
The Pensions Regulator is the UK regulator of work-based pension schemes and works with trustees, employers, pension specialists and business advisers giving guidance on what is expected of them.
Point of Contact
The employer, eg: the business owner, is responsible for complying with changes to workplace pension law and you have to confirm the name of this person to The Pensions Regulator as the ‘primary contact’. If someone else is carrying out the day-to-day tasks of managing auto enrolment you may nominate them as a ‘secondary contact’. Information will be sent to both primary and secondary contacts by email.
Postponement does not affect an organisation’s staging date, it postpones the date on which it has to conduct formal assessment of either all or some of its workforce by up to three months. Postponement is not a method of delaying the introduction of a QWPS, it is a tool that introduces a degree of flexibility into a rigid procedure, giving employers the opportunity to align their auto enrolment duties with their business and payroll commitments.
To be considered a ‘qualifying workplace pension scheme’, the scheme must meet strict ‘qualifying criteria’, for example: schemes must be an occupational or personal pension scheme and be tax registered in the UK; if non-UK, there must a body that regulates them in the country in which they are administered.
Contributions made to pension schemes are based on an individual member’s ‘pensionable earnings’ which, under auto enrolment legislation, are calculated using their ‘qualifying earnings’. This consists of their salary or wages, overtime, bonuses, commission, statutory sick pay, statutory ‘family leave’ and adoption pay, and will have been used to determine whether or not they qualify for auto enrolment.
Qualifying earnings band
This is set each year by the Department of Work and Pensions (DWP) using two ‘qualifying earnings thresholds’: for tax year 2020-21 the lower earnings threshold is £6,240 per year and the upper threshold is £50,000 per year. Only that part of a person’s qualifying earnings falling within the qualifying earnings band count towards their pensionable earnings.
Qualifying earnings threshold
The level of annual gross earnings that qualifies a worker for inclusion within the QWPS either by auto enrolment (eligible jobholder) or by a right to ‘opt in’ (non-eligible jobholder). During the 2020-21 tax year the ‘lower level of qualifying earnings’ is £6,240 per year. Workers earning less than this are classified as ‘entitled workers’.
Qualifying Workplace Pension Scheme (‘QWPS’)
A pension scheme that can be used for auto enrolment in that it satisfies specified ‘qualifying criteria’ and ‘minimum requirements’. Not all existing pension schemes will meet these requirements – if your organisation has a pension scheme it will need to be assessed for compliance. If it doesn’t meet the guidelines it will have to be modified so that it can be used and, if it can’t be modified, you’ll have to find an alternative scheme to use alongside it or to replace it.
Re-declaration of compliance
You must re-declare your compliance to The Pensions Regulator every three years. If you are not automatically re-enrolling staff, you must submit your re-declaration by the day before the date of the third anniversary of your original declaration of compliance; if you are re-enrolling staff, you must submit your re-declaration within two months of your chosen re-enrolment date.
The date on which you must automatically re-enrol any member of staff who left your QWPS. You are free to choose your re-enrolment date but it must fall within a period of time three months either side of the third anniversary of your original staging date. If you are automatically re-enrolling staff, your re-enrolment date will also determine the date you have to re-declare your compliance to The Pensions Regulator.
The date by which you, as an employer, are expected to have met your statutory auto enrolment requirements. The staging date is based on the number of workers in your largest PAYE scheme on 1 April 2012. The staging date is not the date you start doing something about auto enrolment, it’s the date you are expected to have finished putting everything in place – and that may mean starting up to a year beforehand.
Staging date tool
A portal on The Pensions Regulator’s website which enables any employer to find their staging date: simply enter your PAYE reference into the staging date tool at The Pensions Regulator website: find my staging date.
How can One Financial Solutions help you?
One Financial Solutions is here to help you. We can help you plan and implement everything necessary to ensure you comply with the new legislation and fulfil your legal obligations.
If you already have a workplace pension scheme we’ll review it to make sure it can be used and will recommend any changes that may be needed. If you need a new scheme we’ll find one for you and, as a truly independent firm of financial advisers, we’ll make sure the scheme we recommend is selected from the entire market and is the one that is best for both you and your staff.
More than that, if you’d like us to administer the entire scheme for you, we can do that too.
So, if you’re looking for specific help about auto enrolment or just want advice on the subject, please call us on 020 3714 9565 or ask us to call you by sending an email to email@example.com.