Automatic enrolment terms

Automatic enrolment is 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 on automatic enrolment, visit the The Pensions Regulator (TPR) website.

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 2016/2017 tax year, the earnings trigger is £10,000.

Eligible jobholders

  • 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

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.

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.

These employees have a right to opt in to a pension scheme you’re using for automatic enrolment. You must usually do this within a month of receiving their request and you must pay an employer contribution.

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

Employees’ pay which is subject to pension deductions.

Phasing

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

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 2015, the lower level of qualifying earnings is £5,824 and the upper level is £42,385.

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.

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

Staging date

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

Worker postponement

See Eligible postponement.

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