From 2012 Employers will have to automatically enroll their eligible jobholders into a pension scheme which the employer and the jobholder contribute to, unless the jobholder opts out.

The pension scheme can be either a scheme chosen by the employer which meets minimum requirements or the new “Personal Accounts Scheme”.

Although 2012 may seem a long way off, employers preparing business plans or tendering for contracts which run beyond 2012 should factor in additional pension costs.

Trustees may be approached by employers wanting to make changes to existing pension schemes to prepare for the new requirements.

Unless the jobholder opts out, employers will need to:

  1. Automatically enroll jobholders who are 22 and above and have not yet reached state pension age.
  1. Into a qualifying pension scheme.
  1. Pay minimum pension contributions on qualifying earnings.


What is Automatic Enrolment?

  • A jobholder between 22 and state pension age will need to be automatically enrolled, with effect from the first day he becomes eligible.
  • A jobholder can opt out, but employers won’t be able to offer any inducement or encourage him to do so, nor can any questions be asked during the recruitment process regarding whether a potential employee might opt out.
  • A jobholder who is 16 but below 22 or over state pension age but under 75 and receiving qualifying earnings will be able to opt in and if he/she does the employer will then have to make contributions for them.
  • Workers between 16 and 75 earning below the qualifying earnings threshold (5,035 in 2012) will be able to opt in, but the employer will not need to make an employer contribution for them.
  • A jobholder who has opted out will have to be automatically re-enrolled every 3 years up to state pension age and will have to opt out again if he/she still do not want to become a member of the state pension scheme.

Points to note

A jobholder is a worker working in Great Britain under a contract who is at least 16 but under 75, and who receives qualifying earnings.  It includes both employees and others working or providing services for an employer.

An agency worker is included, but it will be the employer which is responsible for paying him that will have to meet the automatic enrolment requirements.

Employers will be able to postpone a jobholder’s automatic enrolment date, probably for 90 days, in prescribed circumstances to be set out in Regulations.  This may help employers who have a high staff turnover rate as they won’t have to automatically enrol eligible jobholder’s from their first day of employment.


What is a Qualifying Scheme?

A Qualifying Scheme can be either an occupational pension scheme (including the Personal Accounts Scheme) or a personal pension scheme.  A qualifying scheme must be a registered scheme for tax purposes and meet the qualifying requirements for the type of scheme it is.  Employers will have to self-certify that their scheme meets the quality requirements.

Quality Requirements – money purchase schemes

  • the employer’s contribution  must be at least 3% of the jobholder’s qualifying earnings in the pay reference period.
  • the total contributions paid by the employer and the jobholder must be at least 8% of the jobholder’s qualifying earnings (some of this will be made up of tax relief) in the pay reference period.

 Quality Requirements – personal pension schemes

  • as for money purchase schemes above plus a direct payment arrangement must be in place so that pension contributions are deducted from jobholder’s pay and paid to the scheme.

 Quality Requirements – defined benefit schemes

  • A qualifying defined benefit pension scheme must either:  
    • be contracted-out; or
    • meet the “test scheme standard” by providing a pension for life from 65 with a minimal accrual rate of 1/120th


Qualifying Requirements – hybrid schemes

  • the quality requirements for money purchase or defined benefit above . subject to any prescribed modifications.


Points to note

The contribution requirements for money purchase schemes and personal pension schemes are the minimum rates required for the scheme to be a qualifying scheme.

Employers may want to set higher scheme contribution rates.  Regulations may impost maximum employee (and employer) contributions for qualifying schemes.

The Personal Accounts Scheme

The Personal Accounts Delivery Authority will be responsible for establishing a qualifying scheme which employers can automatically enroll their eligible jobholders into where they do not want to use a scheme of their own.

This is commonly referred to as the “Personal Accounts Scheme”

The Personal Accounts Scheme will be a trust based multi-employer defined contribution occupational pension scheme.  It will run at arm’s length from Government and will have a sole corporate trustee.

Each member will have their own “personal account” within the Personal Accounts Scheme.

The Government has said it will impose a cap on the amount that can be paid into a personal account, expected to be 3,600 per annum in 2012.  This is to encourage the continued existence of work-based pension arrangements.


What are Qualifying Earnings?

  • Qualifying earnings will be earnings more than 5.035, but not more than 33,540 in a 12 month pay reference period.
  • The Secretary of State must review annually the qualifying earnings band.
  • Earnings include salary, commission, bonus, overtime, shift allowances, and statutory sick, maternity, paternity and adoption pay.


Points to note

Regulations will prescribe when the pay reference period starts and how “earnings” will be calculated for these purposes.

Employers with existing pension schemes may find that the definition of pensionable earnings under their scheme rules is more restrictive than “qualifying earnings”.  They will need to consider the implications of this when assessing whether the scheme meets the quality requirements.


Although 2012 might seem a long way off, employers should be considering now how to comply.  Clearly there will be cost implications and choices to be made.



  • Will your existing scheme meet the qualifying scheme requirements?
  • If not, what changes are necessary (contribution rates, pensionable earnings, accrual rate, eligibility, waiting time, automatic enrolment)?
  • Do you want to use your existing scheme (subject to any changes required)?
  • Do you want to use the Personal Account Scheme?
  • Will you use different schemes for groups of employees (e.g. existing qualifying scheme for existing employees and the Personal Accounts Scheme for new recruits)?
  • What additional pension costs might there be as a result of these changes?
  • Have you factored these additional pension costs into your business planning?
  • Are your employment records good enough to identify all jobholders?
  • Are your administration systems likely to be good enough to automatically enrol jobholders within the required timescales?
  • If you have death in service insurance cover for employees in your current pension scheme, will you extend it to other jobholders?




  1. Do you want to choose your own qualifying scheme or use the Personal Accounts Scheme?
  2. Will you provide more than the minimum level of employer contributions?
  3. What are your pension costs likely to be?
  4. Have you factored pension costs into your business plans?
  5. Are you tendering for any contracts which will run beyond 2012, if so have you factored in the pension costs?
  6. Are your employment records good enough to identify all jobholders?
  7. Are your administration systems likely to be good enough to automatically enrol jobholders within the required timescales?


The framework for automatic enrolment and personal accounts is set out in the Pensions Act 208, but much of the detail will be covered in Regulations.

  • Implementation will be phased in, and is expected to start in October 2012, probably with larger employers going first.


  • The minimum contribution rates for money purchase schemes and personal pension schemes will also be phased in.

Transitional Period

Employer Contribution

Total contribution
(inc tax relief)








The transitional period will last at least a year.  Contribution rates of % employer and 8% total won’t apply until at least 2014 if the legislation comes into force in 2012.

  • Further details on the automatic enrolment process, information requirements, postponing automatic enrolment and opting-out are to be covered in Regulations.  The Department for Work and Pensions are currently consulting on these Regulations and more consultation is planned in the Autumn on further Regulations.


  • Employers offering a choice of benefits, i.e. pensions, healthcare, additional leave etc, may fall foul of the prohibition on inducements.  More information is expected on this in the later Regulations.
  • The requirements for employers to provide access to a designated stakeholder scheme will be removed following the introduction of automatic enrolment and personal accounts.


What happens if an employer does not comply?

The Pensions Regulator has been given enforcement powers, for example to issue compliance notices and to impose financial penalties of up to 50,000.

Imprisonment or civil fines can be imposed on conviction for non-compliance.


Our pensions team can assist you to formulate a strategy and action plan for dealing with the automatic enrolment requirements, tailor-made to your needs and objectives.

If you would like to discuss any of the issues raised, please contact

Graeme Bingham or Iain Campbell


Contact us for more information.
27 West High Street
Tel: 01764 652 225
Fax: 01764 654 433

Disclaimer - No investment decision

No investment decision should be taken based on the content of this site.  Always take full individual advice first.  The regulations governing tax rates and investments may change in the future.

Web Design by EZPC