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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | August 2023
With effect from June 30, 2012, legislation came into effect which required employers to automatically enrol eligible employees into pension schemes which meet certain minimum criteria. The background to this legislation was concern about the increasing size of the retired population in the UK, as people live longer, which results in rising state pension costs. The automatic enrolment regime was therefore introduced as a way of encouraging more people to save for retirement.
The auto-enrolment duties were introduced in stages in relation to existing employers. Now the auto-enrolment duties apply to all employers from the date on which their first worker begins to be employed.
The DWP has undertaken to review the lower and upper earnings limits in the near future.
Under the Pensions Act 2008 (PA 2008), all employers must assess their employees (called “workers” in the legislation) and if they meet certain criteria, they must be auto-enrolled into a pension scheme to which minimum contributions are paid. Auto-enrolment started with the largest employers in October 2012, and since February 1, 2018, it applies to all employers, even those with only one employee.
Workers may opt out of the pension scheme within 1 month of being auto-enrolled. The employer has a duty to re-enrol any eligible jobholders who have opted out every 3 years.
The legislation applies to everyone who works or ordinarily works in the UK under a contract of employment. The legislation distinguishes between the following different types of worker:
Minimum contributions have been phased in. Up to April 5, 2018 the minimum contribution was 2 per cent of qualifying earnings, of which at least 1 per cent had to be an employer contribution. From April 6, 2018, the minimum contribution was 5 per cent of qualifying earnings, of which at least 2 per cent had to be an employer contribution. From April 6, 2019, the minimum contribution has been 8 per cent of qualifying earnings, of which at least 3 per cent must be paid by the employer. An employer can, however, choose to pay a greater contribution than the statutory minimum, and some employers have elected to pay the full amount of the total required contributions themselves.
|
Minimum employer contribution |
Minimum total contribution |
Up to April 5, 2018 |
1% |
2% |
April 6, 2018 to April 5, 2019 |
2% |
5% |
April 6, 2019 onwards |
3% |
8% |
From April 6, 2023, qualifying earnings are earnings (defined in the PA 2008) between £6,240 p.a. and £50,270 p.a.
Certain categories of person may not be workers and may need further evaluation. For example, where the individual does not work normal hours in a regular place of work, casual workers, agency workers, and individuals on zero-hours contracts. In addition, employees whose existing pension benefits have special protection under various Finance Acts need not be auto-enrolled. For multi-national employers, advice may be needed on whether an employee is working or ordinarily works in the UK.
Between October 2012 and February 2018, a statutory timetable was implemented which required existing UK employers to have a private sector workplace pension scheme in place by a designated date - their staging date. Staging dates were dependent on the number of employees; larger employers had an earlier staging date than smaller employers.
The last existing UK employers passed their staging dates in February 2018. Now, all new employers must comply with the auto-enrolment requirements as soon as the first worker begins to be employed by the employer. Employers can, however, postpone an employee’s auto-enrolment date for up to 3 months.
The key employer duties are to:
Employers must also ensure that:
Most employers decide to use a defined contribution scheme for auto-enrolment and this route is assumed in the remainder of this note. Employers should note that there is nothing in the legislation preventing the use of a group personal pension scheme or a defined benefit (DB) scheme for auto-enrolment, so long as the minimum level of contributions or accrual is provided.
A note of caution for DB schemes though: April 2019 marks the third anniversary of the cessation of final salary-related contracting-out. Whilst DB schemes were contracted-out, they automatically met the statutory standard required to be an auto-enrolment scheme. When contracting-out ended, DB schemes then had to comply with the new “cost of accruals” test, or else use the “test scheme” evaluation which had been used for schemes which were not contracted-out before 2016. Either way, trustees of DB schemes used for auto-enrolment should check with their scheme actuary that they remain compliant after April 2019.
Employers must enrol eligible jobholders in a scheme which meets the minimum contributions requirements. Alternatively if the scheme has a different benefit structure, employers can self-certify that contributions are made on one of the following bases:
Minimum contributions or one or more of the different Tiers can be used for different sections of the employer’s workforce.
The employer must also check that the scheme rules:
A newly-established employer should undertake an initial assessment of its workforce in order to determine who will need to be auto-enrolled, and what information other workers need.
The employer will then need to take steps to prepare for auto-enrolment including:
Different employee communications will be required in respect of eligible jobholders, jobholders and entitled workers.
Generally, workers will need information on:
Information packs will have to be assembled for eligible jobholders. Information must also be given in advance if the employer will be postponing an employee’s auto-enrolment date. Record keeping is key. The employer should talk to its payroll provider, since information will need to be pooled each time someone joins the employer’s workforce, so that the correct information can be provided. Ongoing records need to be kept for opt-outs, opt-ins and new eligible jobholders for auto-enrolment.
TPR, which enforces compliance with the auto-enrolment duties, has published online guidance about auto-enrolment and has also provided template letters which can be tailored for use by employers. The penalties for non-compliance are harsh: TPR can impose a £400 fixed penalty plus escalating penalties of up to £10,000 per day for employers with 500 or more employees. Senior office holders could be jailed for up to 2 years for wilful failure to comply.
TPR publishes regular compliance and enforcement bulletins, available online.
In December 2017, the Department for Work and Pensions (DWP) published the findings of its review of automatic enrolment. The DWP has committed to an updated review at a date yet to be answered. The main proposals were as follows:
The intention is to implement these proposals by the “mid-2020s”.
A further DWP report was published in December 2018, which set out various Government plans for carrying out research on different approaches to help self-employed people save for retirement, which had not been progressed at time of writing. However, the Government acknowledges that this is an important issue, given the number of self-employed people working in the UK.
What should new employers do?
Steps for employers already having auto-enrolment schemes
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