Employees between the age of 22 and the State retirement age, earning at least £7,475 (or the prevailing PAYE threshold) must be automatically enrolled into a qualifying pension scheme. Anyone earning less than £7,475 will not be forced to enrol.

However, those earning between £5,715 (currently lower National Insurance threshold) and £7,475 will be allowed to opt in and the employer will not be required to make a contribution, but may choose to do so. Employees aged between 16 and 22 years or between State Pension Age and 75 years, who are earning more than £7,475 will be able to opt in and will get employer contributions if they do.

The self employed and sole trader directors would not be automatically enrolled, however, they can join on a voluntary basis. Employers will be required to register how they intend to meet their enrolment duties, for each PAYE scheme they run, with The Pensions Regulator. This will be monitored in conjunction with the HMRC.

Eligible employees can independently opt-out of being auto-enrolled but, if they do, they will periodically go through an automatic re-enrolment process. Automatic enrolment is designed to overcome the inertia that currently prevents many people from saving and is intended to make it easy for individuals to save for retirement.

It will be rolled out over a period of four years beginning October 2012. All employers will need to designate a qualifying pension scheme into which all of their eligible employees will be automatically enrolled. Existing money purchase and personal pension schemes need to ensure their plans meet the qualifying criteria within the first three years from 2012.

In the case of defined benefits (“final salary schemes”) and hybrid pension schemes the transitional period is the four year period to October 2016, by which date, all employers must have complied. The timing is determined by the number of employees in your PAYE system.

Employers can choose to operate a waiting period of up to three months before auto-enrolling their employees to cover things like probationary periods. This will also help employers avoid having to automatically enrol short-term employees unnecessarily. But if they do, eligible employees must be told that they can opt-in during this period to benefit from an employer pension contribution sooner.

Employers need to build the cost of complying with auto enrolment into future budget projections. This will need to include contribution increases, employees not currently a member of your pension scheme or if you do not already have a workplace pension scheme in place, the cost of implementing a qualifying scheme and/or NEST.

In addition, all employers will need to inform their employees. Keeping employees informed will avoid problems closer to auto enrolment time. An employee who is unaware of the new legislation will certainly be asking why their pay packet is reduced, when pension deductions commence. Misunderstanding and frustration amongst the workforce can be eliminated by effective communication of forthcoming changes.