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.

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. 

Here are some of the main differences between contractual and auto-enrolment:

Contractual enrolment 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 has 80 workers and their staging date is 1 January 2016. They have decided that they want to contractually enrol the whole workforce into a qualifying scheme, but they want to delay it until 1 March 2016. They can do this by postponing the auto-enrolment date until 1 April 2016 and then ensuring that the workforce are all contractually enrolled before then (on the planned date of 1 March 2016). When the deferral date of 1 April 2016 arrives, all the workers will already be in a qualifying scheme so won’t need to be auto-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:

Opting in, joining and contractual enrolment

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