Auto enrolment: our top five frequently asked questions top five questions

1. If a company has three directors and no other employees, do they need to set up an auto enrolment scheme?

They can choose whether to apply the auto enrolment duties or not. So, they don’t need to set up a scheme.  All the other duties and safeguards will apply as usual. 

There’s more information on this exemption in paragraphs 107-109 of the automatic enrolment detailed guidance.

2. Does a non-UK employer have any duties in respect of employees in the UK?

If the contract of employment places the employee in the UK, the employer will have to assess that employee even if the employer is based overseas. 

There is more information on assessing a worker in the automatic enrolment detailed guidance.

3. What are the options if an employee is affected by the tapered annual allowance, and the total contributions to the auto enrolment scheme are greater than their available annual allowance for the current year?

There are three main options:

• The contributions can continue as expected and the employee pays any annual allowance tax charge due. However, there could be unused annual allowance from a previous tax year which could reduce or eliminate any tax charge.
• The scheme could switch to a definition of qualifying earnings for this member. This would allow the employee to continue being a member of the auto enrolment scheme but contributions would be below the tapered annual allowance therefore avoiding a charge. The employee could negotiate further salary or bonus in exchange.
• Contributions could be restricted to the available annual allowance therefore avoiding any annual allowance tax charge. This could mean the member has to cease membership of the auto enrolment scheme if contributions were below the auto enrolment minimum. The contributions could be made to another scheme or another non-auto enrolment section within the same scheme. Again, the employee could negotiate further salary or bonus in exchange.

4. If an employee is an entitled worker, does the employer need to contribute if the employee wants to join a scheme?

No. The employer doesn’t need to contribute but many do. The employer does however have a duty to choose a pension scheme the entitled worker can join. This doesn’t have to be an auto enrolment scheme but the employer does have to deduct contributions on behalf of the entitled worker and pay these into the scheme.

5. What happens to auto enrolment pension contributions during parental leave?

If a member of an auto enrolment scheme goes on parental leave, they can continue to pay contributions during their parental leave. During the period of paid parental leave, individual contributions will be based on the actual earnings the individual is receiving. Employer contributions will be based on the level of earnings immediately before parental leave.

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.