Key facts
- The total minimum contribution is 8% of qualifying earnings: 5% from the employee and 3% from the employer.
- Qualifying earnings in 2026/27 are between £6,240 and £50,270 per year.
- Eligible workers are aged 22 to State Pension age and earn over £10,000 per year.
- Employees can opt out within one month of being enrolled, but employers must re-enrol them roughly every three years.
- The employer must choose a qualifying pension scheme and manage enrolment, contributions, and record-keeping.
What Is Pension Auto-Enrolment?
Pension auto-enrolment is the legal requirement for employers to automatically enrol eligible workers into a qualifying workplace pension scheme and make minimum contributions. The system was introduced by the Pensions Act 2008 and rolled out between 2012 and 2018, starting with the largest employers.[1]
The aim is to ensure that every worker builds up a retirement savings pot, complementing the State Pension. Before auto-enrolment, many private-sector employees had no workplace pension at all.
Who Must Be Auto-Enrolled?
Workers are categorised into three groups for auto-enrolment purposes:
| Category | Age | Earnings | Employer Duty |
|---|---|---|---|
| Eligible jobholder | 22 to State Pension age | Over £10,000/year | Must auto-enrol and contribute |
| Non-eligible jobholder | 16–21 or SPA–74, earning £6,240–£10,000; or 22 to SPA earning under £6,240 | Various | Must enrol if worker requests (opt-in); employer contributes |
| Entitled worker | 16–74 | Under £6,240/year | Must provide access to a scheme if requested; no employer contribution required |
Key point: Earnings thresholds are based on annualised pay. For monthly-paid employees, the £10,000 auto-enrolment trigger equates to approximately £833 per month. If an employee’s pay fluctuates, they should be enrolled in any pay period where their earnings exceed the trigger threshold on an annualised basis.
Minimum Contribution Rates
The minimum contribution rates (which have been at their full level since April 2019) are:[1]
| Contributor | Minimum % | Calculated On |
|---|---|---|
| Employer | 3% | Qualifying earnings (£6,240 – £50,270) |
| Employee | 5% (including tax relief) | Qualifying earnings (£6,240 – £50,270) |
| Total minimum | 8% | Qualifying earnings |
Qualifying earnings means the band of earnings between £6,240 and £50,270 (2026/27 figures). Contributions are only due on pay within this band, not on the employee’s total salary.
How Auto-Enrolment Works in Payroll
From a payroll perspective, the auto-enrolment process involves:
- Assess each worker every pay period to determine their category (eligible, non-eligible, or entitled)
- Enrol eligible jobholders and send a joining notification to the pension provider
- Calculate contributions on qualifying earnings for that pay period
- Deduct the employee’s share from their pay (shown on the payslip)
- Add the employer’s share and remit total contributions to the pension provider
- Issue an enrolment letter to the employee within six weeks, explaining their rights including the right to opt out
Tip: Many payroll software packages (including #GoFile) handle the assessment and contribution calculations automatically. However, the employer remains legally responsible for ensuring the correct workers are enrolled and the right contributions are paid.
Opting Out and Re-Enrolment
An employee can opt out of auto-enrolment within one calendar month of being enrolled. They must contact the pension provider directly — not the employer. If they opt out within this window:
- All contributions deducted during the opt-out period are refunded
- The pay period is treated as if the employee was never enrolled
However, employers must re-enrol all eligible jobholders who have opted out approximately every three years (on the employer’s re-enrolment date). The employee can opt out again after each re-enrolment.[2]
Tax Relief on Pension Contributions
There are two methods for giving tax relief on employee pension contributions:
- Net pay arrangement: The pension contribution is deducted from gross pay before Income Tax is calculated. The employee gets full tax relief automatically, but NI is still calculated on the full gross pay.
- Relief at source: The contribution is deducted from net pay, and the pension provider claims back basic rate (20%) tax relief from HMRC. Higher and additional rate taxpayers must claim extra relief through Self Assessment.
Ongoing Employer Duties
Auto-enrolment is not a one-off exercise. Employers must:[3]
- Assess new starters and existing workers at every pay period
- Maintain records of enrolment, opt-outs, and contributions for six years
- Complete a re-declaration of compliance with The Pensions Regulator every three years
- Ensure the pension scheme continues to qualify
- Never encourage or induce workers to opt out
Frequently Asked Questions
Can an employee opt out of auto-enrolment?
Yes. An employee can opt out within one calendar month of being enrolled by contacting the pension provider. If they opt out within this window, their contributions are refunded. However, the employer must re-enrol them approximately every three years (on the re-enrolment date) if they are still an eligible jobholder.
Do employers have to contribute even if using a salary sacrifice scheme?
Yes. Under salary sacrifice, the employee gives up part of their salary in exchange for employer pension contributions. The employer must still ensure that total contributions (employer plus salary sacrifice) meet or exceed the 8% minimum on qualifying earnings. Salary sacrifice can reduce NI for both parties, making it a popular arrangement.
What happens if the employer does not comply with auto-enrolment?
The Pensions Regulator (TPR) can issue compliance notices, fixed penalty notices (£400), and escalating daily penalties ranging from £50 to £10,000 depending on the size of the employer. Persistent non-compliance can lead to criminal prosecution.
Are directors automatically enrolled?
Only if they have a contract of employment. A sole director without an employment contract is not a “worker” for auto-enrolment purposes and does not need to be enrolled. If a company has multiple directors with contracts, they are treated like any other employee for auto-enrolment.
Further Reading
- Statutory Deductions (Tax, NI, Student Loan) — how pension deductions interact with other payroll deductions
- Payslip Legal Requirements — showing pension contributions on payslips
- PAYE for Single Directors — how auto-enrolment applies to company directors
- Payroll Year-End Checklist — year-end pension duties alongside PAYE obligations
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Sources
- Workplace pensions: auto-enrolment — GOV.UK
- Set up a workplace pension scheme — GOV.UK
- Employer duties and penalties — The Pensions Regulator