Sage Business Cloud Help

Payroll

Select different service

Automatic enrolment terms

Automatic enrolmentis new to everyone, so it’s natural that you might come across terms which are unfamiliar. To help you understand automatic enrolment, we’ve listed some of the most common terms below.

You can also find information on the Automatic enrolment and pensions language guide.

For detailed information about automatic enrolment, visit the The Pensions Regulator (TPR) website.

Auto Enrolment

This is the term used to describe the changes to pensions, where companies will automatically enrol eligible jobholders into a qualifying workplace pension.

Contributions

This is what both the employee and employer will pay into the employee’s pension pot. See the ‘Contributions’ section of this guide for more detail.

Defined benefit (DB) scheme

A type of pension scheme which is related to the members’ earnings when they leave the scheme, and is more commonly known as a final salary scheme.

Defined contribution (DC) scheme

A type of pension scheme which is paid into by employees and employers. Usually, the contributions are then invested.

Earnings trigger

The level of earnings from which a worker is automatically enrolled. For the 2018/2019 tax year, the earnings trigger is £10,000.

Eligible jobholders

These employees must be automatically enrolled onto your default qualifying pension scheme, and you must make employer contributions towards it.

  • Aged between 22 – stage pension age (SPA).
  • Earns above the automatic enrolment earnings trigger.
  • Working in UK.

These employees must be automatically enrolled into a pension scheme and you must make employer contributions towards it.

Eligible postponement

Employers can choose to postpone assessment for automatic enrolment for a period of their choice of up to three months.

Entitled workers

An entitled worker can join a pension scheme if they want to, but it doesn’t have to be a qualifying scheme and you don’t have to make any employer contributions.

These employees can choose to join a pension scheme. The scheme doesn’t have to be one you use for automatic enrolment and you don’t have to pay an employer pension contribution unless you want to.

Final salary scheme

A type of pension scheme which is related to the members’ earnings when they leave the scheme. Also known as a Defined benefit (DB) scheme.

Hybrid scheme

A pension scheme that includes a combination of DB and DC benefits.

Inducement

An offer made by an employer to encourage a member to transfer out of an existing pension scheme or to opt out of their automatic enrolment scheme. This usually takes the form of an upfront cash payment, but could be a one off contribution to an alternative, usually DC, pension arrangement.

NEST

The National Employment Savings Trust is a pension provider available to all employers who want to use them. They offer a pension scheme designed for automatic enrolment that any UK employer can use to meet their new workplace pension duties, no matter what the size of the organisation.

Net Pay Arrangement

This means the employee receives tax relief by taking the contribution on the gross amount of pay ( e.g. at 1%).

Non-eligible jobholder

A non-eligible jobholder is either:

  • Aged between 16 and 74.
  • Earns more than the lower earnings limit (LEL) for NI but not more than the automatic enrolment earnings trigger.
  • Working in UK.

Or

  • Aged between 16 and 21 or state pension age (SPA) and 74.
  • Earns more than the automatic enrolment earnings trigger.
  • Working in UK.
A non-eligible jobholder can opt in to a pension scheme. It must be a qualifying scheme and you must make employer contributions.

Occupational pension scheme

A pension scheme set up by an employer for their workers.

Opt in or join

Depending on specific criteria, non-eligible jobholders have a right to opt in to a qualifying pension scheme. Entitled workers have a right to join a pension scheme, but it doesn’t have to qualify for automatic enrolment.

Opt out or leave

A jobholder, who has become an active member of a qualifying pension scheme under automatic enrolment, has the right to opt-out of the scheme. They must first receive the relevant information from their employer. If they don’t opt out within certain timescales, they can choose to leave the scheme.

Pay reference period

The pay reference period aligns with the tax periods. For a monthly paid employee, the pay reference period starts on the first day of the tax month, which is the 6th day of a calendar month.

Pensionable pay

All employee pay that is subject to pension deductions. To check the payments subject to pension deductions, go to Payment and Deduction Settings and click on the relevant payment type.

Phasing

The minimum contribution rates that employers and employees must pay into their pension scheme will be introduced gradually. This is known as phasing.

Postponement

Employers can postpone their staging date but only under certain circumstances. Postponement allows employers to avoid difficult pro-rated calculations. It also helps with refunding of contributions when people opt out in a different tax year to the one in which the deduction was made.

Qualifying earnings

Qualifying earnings is a reference to earnings between a lower and upper level, made up of any of the following components of pay that are due to be paid to the worker.

  • Salary
  • Wages
  • Commission
  • Bonuses
  • Overtime
  • Statutory sick pay
  • Statutory maternity pay
  • Ordinary or additional statutory paternity pay
  • Statutory adoption pay

From 6 April 2018, the lower level of qualifying earnings is £6,032 and the upper level is £46,350.

It’s your responsibility as an employer to understand TPR guidelines for qualifying earnings and determine what the qualifying earnings are for your employees. We can’t advise you what earnings to use. If you’re unsure, contact TPR or your pension provider.

Qualifying pension scheme

A pension scheme which meets the criteria for automatic enrolment, as set out by TPR. For more information, visit their website at www.thepensionsregulator.gov.uk

Relief at Source

This pension means the employee will pays less (e.g. 0.8%) and the government gives the remaining (0.2%) amount into your pension pot.

Staging date

The staging date is the date from which employers must start assessing employees for automatic enrolment.

Worker postponement

See Eligible postponement.

Workplace Pensions

This is the pension scheme setup for your retirement that’s arranged by the employer. Both the employee and employer can contribute.

Read more about automatic enrolment >>

Did you find this helpful?

Still need help?

Ask the Sage City community. Sage City is the place to ask questions, share tips and ideas, get practical advice and all the breaking news. Alternatively, find out other ways of getting in touch.

Visit Sage City