Contractual vs automatic enrolment
These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.13 June 2018
Instead of assessing their workforce and auto-enrolling all eligible jobholders into an auto-enrolment scheme, some employers may decide to enrol all of 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.
What are the differences between contractual and auto-enrolment?(Expand content) (Minimise content)
Here are some of the main differences between contractual and auto-enrolment:
|The worker must give consent to join the scheme.||No worker consent is required to join the scheme.|
|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.|
|Workers can’t opt out (as defined under the Pensions Act 2008).||It is possible to opt-out after being auto-enrolled.|
|Workers can leave the scheme but scheme rules will determine if a refund of personal contributions is payable. If there are any leavers, the employer will then have auto-enrolment duties to fulfil for them.||If a jobholder opts out within the required timescales, 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 delay 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.
Drill Bits UK is a new employer and employed 5 members of staff on 1 June 2018. This means their employer duties began on 1 June 2018.
They have decided to contractually join all five workers into a qualifying scheme, but they want to delay it until 1 August 2018. They can do this by postponing until 1 September (this is the latest date they can postpone to) then making sure that they contractually join all of the workers before then. When the deferral date of 1 September 2018 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 page 23 of the Pensions Regulator’s detailed guidance on:
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.
Pensions Technical Services