Auto-Enrolment Pension Guide UK 2025: Employer & Employee Rules

History and Rollout of Auto-Enrolment

Auto-enrolment was enshrined in law by the Pensions Act 2008 following recommendations by the Pensions Commission (Turner Commission) in 2005. The commission found that millions of UK workers were not saving adequately for retirement and that voluntary saving alone was insufficient to address the pension savings gap.

The rollout was carefully phased to allow businesses time to prepare:

The results have been remarkable. Before auto-enrolment, only about 55% of private sector workers were saving into a workplace pension. By 2024, this figure had risen to over 88%. Approximately 22 million employees are now saving through auto-enrolment, and over 2.7 million employers have complied with their legal duties.

Contribution Phasing History

Minimum contributions were phased in gradually to ease the burden on employers and employees:

Employer Duties Under Auto-Enrolment

Every UK employer — from a multinational corporation to a person hiring a single domestic worker — has legal duties under auto-enrolment. These duties begin on the duties start date, which is the day the first worker starts work for a new employer.

Core Employer Obligations

1. Assess the workforce: Categorise every worker as eligible, non-eligible, or entitled based on age and earnings.
2. Provide a qualifying pension scheme: Choose a pension scheme that meets the government's quality requirements. Popular options include NEST, The People's Pension, NOW: Pensions, and many commercial providers.
3. Automatically enrol eligible workers: Enrol all eligible workers without waiting for them to ask.
4. Pay employer contributions: Pay at least 3% of qualifying earnings into the pension for each enrolled worker.
5. Communicate with workers: Write to all workers within 6 weeks of their duties start date explaining what has been done and what it means for them.
6. Process opt-out requests correctly: If a worker opts out within the window, refund their contributions promptly and update records.
7. Complete the Declaration of Compliance: File with The Pensions Regulator within 5 months of the duties start date.
8. Perform re-enrolment every 3 years: Re-assess and re-enrol eligible workers who had opted out.
9. Keep records: Maintain detailed records of enrolment, contributions, and opt-outs for at least 6 years.

Eligible, Non-Eligible and Entitled Workers

The classification of each worker determines your duties as an employer and their rights as an employee:

Eligible Jobholders — Must Be Auto-Enrolled

• Aged 22 to State Pension age (currently 66)
• Earning over £10,000 per year
• Working (or ordinarily working) in the UK
• Employer must enrol automatically AND pay at least 3% contributions

Non-Eligible Jobholders — Can Opt In (with Employer Contribution)

• Aged 16–21 or State Pension age to 74 earning over £6,240/year; OR
• Aged 22 to State Pension age earning between £6,240 and £10,000/year
• Must be enrolled if they request it in writing
• Employer must contribute at the minimum rate once enrolled

Entitled Workers — Can Join (No Employer Contribution Required)

• Aged 16–74 earning under £6,240/year
• Can request to join a pension scheme
• Employer must provide access to a scheme but is not required to contribute

Workers Excluded from Auto-Enrolment Duties

• Company directors with no employment contract (sole directors)
• Partners in a business partnership
• Workers already in a qualifying scheme
• Workers who have given notice or received notice of termination
• Workers who have recently opted out (within the past 12 months for refunds, then re-enrolled every 3 years)

Qualifying Earnings Band 2025/26

Minimum contributions are calculated on qualifying earnings — a band of income set each tax year by the Department for Work and Pensions (DWP).

Qualifying earnings include:

• Basic salary and wages
• Bonuses and commission
• Overtime pay
• Statutory sick pay (SSP)
• Statutory maternity pay (SMP)
• Statutory paternity pay (SPP)
• Statutory adoption pay (SAP)

They do not include:

• Benefits in kind (company car, private medical insurance)
• Share option gains
• Redundancy pay
• Employer pension contributions

Alternative Contribution Bases

Employers are not limited to using qualifying earnings. They can use a different basis if it results in equal or higher contributions:

• Total earnings: Contributions on all earnings (no lower threshold deducted) — typically higher contributions
• Basic pay only: Contributions on basic salary excluding overtime and bonuses — may be simpler but must still meet the 8% total minimum on qualifying earnings
• Set percentage of total pay with higher rate: A flat percentage applied to all earnings that passes the regulatory test

Minimum Contribution Rates in 2025/26

The minimum contribution rates have been fixed at the following levels since April 2019:

The employee's 5% includes basic rate income tax relief of 1%. For basic rate taxpayers, every £0.80 contributed results in a £1.00 pension contribution (the government tops up the remaining £0.20). Higher and additional rate taxpayers can claim further relief through self-assessment or PAYE adjustments.

How to Opt Out of Auto-Enrolment

Every eligible worker has the legal right to opt out of auto-enrolment. However, there are strict rules about the process to prevent employers from coercing or inducing workers to opt out (which is illegal).

The Opt-Out Process

1. The opt-out window opens from the date you are formally enrolled (not from when you started employment). You have exactly one calendar month.
2. Request an opt-out notice from the pension provider (not your employer). This is an important safeguard — your employer cannot hand you an opt-out form, as this could constitute inducement.
3. Complete and return the opt-out notice to your employer within the one-month window.
4. Your employer stops deductions and must refund any contributions already taken from your pay within one month.
5. After the opt-out window, you can still cease contributions, but you may not receive a refund — your contributions up to that point remain in your pension pot.

Employer Prohibitions

It is illegal for an employer to:

• Encourage or induce a worker to opt out
• Offer any financial incentive to opt out
• Make opt-out a condition of employment or contract
• Dismiss or disadvantage a worker who refuses to opt out

Workers who experience any of these behaviours should report them to The Pensions Regulator at thepensionsregulator.gov.uk or call 0345 600 0707.

Re-Enrolment: Every 3 Years

One of the most important features of auto-enrolment is the mandatory re-enrolment cycle. Employers must automatically re-enrol eligible workers who previously opted out approximately every three years from the employer's original staging date.

How Re-Enrolment Works

1. Approximately three years after the employer's staging or duties start date, a re-enrolment date is triggered.
2. Employers choose a date within a six-month window around the third anniversary (three months before or three months after).
3. Employers re-assess all workers and re-enrol those who opted out and still meet eligibility criteria on the re-enrolment date.
4. Workers can opt out again after being re-enrolled, following the same one-month process.
5. The employer must complete a re-declaration of compliance with The Pensions Regulator within five months of the re-enrolment date.

Workers who are already in a pension scheme (because they stayed enrolled or joined voluntarily) do not need to be re-enrolled — only those who have opted out or ceased membership are affected.

Re-enrolment recognises that circumstances change. A worker who opted out at 25 when money was tight may be in a much better position at 28 and benefit from resuming pension savings — particularly if they would lose employer contributions by opting out again.

Employer Compliance: The Pensions Regulator

The Pensions Regulator (TPR) is the government body that oversees auto-enrolment compliance. TPR monitors whether employers have met their duties, processes declarations of compliance, and takes enforcement action against non-compliant employers.

TPR's Compliance Tools

• Online employer portal: Employers use TPR's online system to register, complete declarations, and manage re-enrolment
• Automatic reminders: TPR sends letters and emails reminding employers of key deadlines
• Compliance checks: TPR contacts employers to verify they have enrolled workers and paid contributions
• Whistleblowing service: Workers can report non-compliance; pension providers and payroll professionals can also flag concerns
• Industry liaison: TPR works with software providers to ensure payroll systems are compatible with auto-enrolment

TPR publishes quarterly compliance and enforcement bulletins showing the number of notices issued, with millions of automatic enrolment compliance actions taking place each year.

Declaration of Compliance

The Declaration of Compliance is a legal document that every employer must complete and submit to The Pensions Regulator. It confirms that the employer has fulfilled their auto-enrolment duties.

What the Declaration Confirms

• The scheme(s) used for auto-enrolment
• Number of workers enrolled
• Number of workers who opted out
• The employer's own contributions
• The employer's PAYE reference and Companies House number (if applicable)

The declaration must be submitted within five months of the duties start date. Failure to complete it is itself a compliance breach and can result in fixed penalty fines. For re-enrolment, a re-declaration must be completed within five months of the re-enrolment date.

The declaration is completed online at thepensionsregulator.gov.uk and takes approximately 15 minutes for most small employers.

Penalties for Non-Compliance

Employers who fail to meet their auto-enrolment duties face escalating penalties from The Pensions Regulator. The penalty framework is designed to be proportionate to the size and financial position of the business:

Since 2012, TPR has issued thousands of penalty notices. The vast majority of employers comply once they receive an initial warning letter. TPR's approach is to educate first and only escalate to formal enforcement for persistent or wilful non-compliance.

Employers who discover they have accidentally failed to enrol workers correctly are strongly encouraged to self-correct promptly and notify TPR. Voluntary correction is treated more favourably than cases where TPR discovers the breach independently.

Frequently Asked Questions