This guide is for financial advisers only. It mustn’t be distributed to, or relied on by, customers. It is based on our understanding of legislation as at May 2023.
Instead of assessing their workforce and auto-enrolling all eligible jobholders into an auto-enrolment scheme, some employers may decide to enrol all their workers into a qualifying pension scheme. When this is done using a contractual agreement with the workers it’s known as contractual enrolment. The rules the employer must follow for contractual enrolment are different to those they’d follow for auto-enrolment. If you want to read more about qualifying and auto-enrolment schemes, see the links above.
The differences between contractual and auto-enrolment
Contractual enrolment |
Auto-enrolment |
|---|---|
The worker must give consent to join the scheme. |
The employer can enrol workers into the scheme without their consent. |
The employer must get the worker’s permission to deduct contributions from salary. |
The employer must deduct contributions from salary in accordance with the Pensions Act 2008. Permission from the worker isn’t needed. |
Contractually-enrolled workers don't have opt-out rights under the Pensions Act 2008. |
Auto-enrolled workers have the right to opt out within one month of being auto-enrolled. |
Workers can leave the scheme but scheme rules and legislation will determine if a refund of personal contributions is payable. If there are any scheme leavers, the employer will then have auto-enrolment duties to fulfil for them. |
If a jobholder opts out within the required timescale, they will be entitled to a refund of personal contributions. |
The employer can’t use postponement to delay contractual joining*. |
The employer can postpone the auto-enrolment date by three months. |
Workers can decide not to join before contractual enrolment takes place. However, if they do this the employer will have auto-enrolment duties for them. |
Eligible jobholders can’t opt out until they’ve been auto-enrolled (even if they’ve decided they won’t stay in the pension scheme after being enrolled). They must wait until the opt-out period starts before they can opt out. |
* Although an employer can’t defer contractual enrolment by using postponement, they can use the postponement rules to postpone the date they have to auto-enrol eligible jobholders. So long as they contractually enrol their workers into a qualifying scheme before the deferral date (i.e., the date they postpone to), all their workers will be in a qualifying scheme when the deferral date arrives, so there won’t be any workers to auto-enrol.
Example
Drill Bits UK is a new employer and employed five members of staff on 1 April 2024. This means their employer duties began on 1 April 2024.
They have decided to contractually enrol all five workers into a qualifying scheme, but they want to defer it until 1 June 2024. They can do this by postponing until 1 July 2024 (this is the latest date they can postpone to) then making sure that they contractually enrol all the workers before then. When the deferral date of 1 July 2024 arrives, all the workers will already be in a qualifying scheme so won’t need to be automatically enrolled.
Drill Bits UK will need to make sure they comply with all the information requirements if they do this. See TPRs detailed guidance on this topic (from paragraph 78).
It’s worth remembering that jobholders have the right to opt in and entitled workers have the right to join a scheme during the postponement period, so Drill Bits UK will have to have plans in place to accommodate this.