Summary

 

Automatic enrolment	Employers must automatically enrol jobholders aged between 22 and the state pension age. A jobholder is someone who works in the UK aged between 16 and 75 with qualifying earnings.
Qualifying earnings	The lower limit is £5,035 and the upper limit is £33,540 in 2006/07 earnings terms. This will be reviewed annually. Qualifying earnings are to include salary, wages, commission, bonuses, overtime and certain statutory benefits.
Automatic enrolment schemes	These schemes must be qualifying occupational pension schemes that allow automatic enrolment to take place.
Qualifying scheme and quality requirement	Qualifying schemes are schemes that meet minimum standards and quality requirements. A qualifying scheme can be either an occupational pension scheme or a personal pension scheme. UK occupational money purchase - rules must require an employer contribution of at least 3% of qualifying earnings and total contributions paid by the employer and jobholder of at least 8%. UK defined benefit scheme (contracted-out) – the scheme must have passed the scheme reference test. UK defined benefit scheme (contracted-in) – the scheme must provide a pension rate of at least 1/120th of the average qualifying earnings in the last 3 tax years before leaving pensionable service for each year of scheme membership (subject to a maximum of 40 years). UK personal pension - the employer must contribute at least 3% of qualifying earnings and the jobholder must be required to make up any shortfall in contributions up to a total of 8%. There must be agreements between the scheme, the employer and the jobholder confirming the contributions required. The employer must agree to deduct contributions from earnings and pass on to the scheme.  It is worth noting that most private pension schemes use basic salary for the calculation of contributions and/or benefits.  There will undoubtedly be practical issues for employers/pension providers who are trying to ensure that their schemes meet the defined minimum criteria of a qualifying scheme.
Deduction of contributions	Employers who automatically enrol, re-enrol or arrange opt in for a jobholder into a scheme, are permitted to deduct the contributions from the jobholder’s pay and pass on to the scheme.
Right to opt out	A jobholder who has been automatically enrolled may opt out by providing a signed notice. Once a jobholder has opted out they will be treated as if they had never been a member of that scheme. Note that jobholders will automatically be re-enrolled after 3 years and may need to opt out again.
Right to opt in	Jobholders who are between 16 and 22 can ask to opt into the automatic enrolment scheme.
Penalties	Employers who do not comply with the new requirements can be fined up to £50,000, be subject to a fine that increases daily and could face possible imprisonment.