Auto-enrollment: know your tiers – the Pensions Ombudsman determination in Miss Y (PO-23113)




In a recent determination, the Pensions Ombudsman upheld a complaint against an employer for failing to automatically enroll an employee into a workplace pension plan at the required time because the employer applied an incorrect earnings basis to calculate contributions, and concluded that this amounted to maladministration. 


When establishing a workplace pension plan to satisfy auto-enrolment requirements, employers can choose to use the standard "qualifying earnings" band (i.e. a band of earnings between £6,240 and £50,270) to calculate minimum pension contributions or to certify that they meet automatic enrolment duties by choosing one of three tiers described in the Pensions Act 2008, and summarised in the table immediately below. The minimum contribution levels differ depending on the earnings basis used.

Tier  Description

Tier 1

The percentage is based on an employee's basic salary, which will only include contractual and statutory payments.

Tier 2

The percentage is based on an employee's pensionable pay, which includes additional payments such as any commission, overtime and bonuses.

Tier 3

The percentage is based on 100% of an employee's salary, including any commission, overtime and bonuses.

Certification by the employer is voluntary. Pension schemes which expressly provide for the required minimum contributions based on qualifying earnings do not need to certify. However, it is important for employers to be clear on the earnings basis they have decided upon with their pensions provider as the basis to calculate contributions for their workers. 

The Pensions Regulator is increasing its use of its enforcement powers in relation to employers' breaches of their automatic enrolment duties and, between October and December 2020 alone, it took enforcement action in relation to automatic enrolment more than 18,000 times1. This highlights the importance for employers to regularly assess their compliance with automatic enrolment requirements and put in place a clear governance strategy.

Key facts

The complainant, Miss Y, was employed by Ansdell Road Post Office and Fyle News (Employer) from August 2012 to May 2018. In February 2016, the Employer completed an online application form in order to create the Ansdell Road Post Office and Fyle News Group Personal Pension Plan with its provider (Pension Plan), and chose "Tier 2" qualifying earnings for automatic enrolment eligibility purposes (which includes overtime pay). However, it is understood that the Employer had intended to use "basic pay" (Tier 1) for automatic enrolment eligibility purposes (i.e. excluding overtime pay).

The wages under Miss Y's employment contract were insufficient for her to meet the earnings threshold under Tier 1. However, taking into account overtime pay, Miss Y's wages were in excess of the earnings threshold which would trigger automatic enrolment and entitle Miss Y to receive contributions from the Employer (if she made the applicable employee contributions). 

Shortly after leaving employment in 2018, Miss Y discovered that she had not been automatically enrolled into the Pension Plan after the Employer's staging date on 1 July 2016. She wrote to the Employer to ask that they comply with the automatic enrolment legislation and confirm when it had completed her retrospective enrolment, but this was not acknowledged.

The Employer's position was that the employee's eligibility for automatic enrolment was based on basic pay, which did not include overtime pay. Further, that Miss Y had declined the offer to join the Pension Plan at a staff meeting in May 2016.


The Pensions Ombudsman upheld Miss Y's complaint and concluded that the Employer was in breach of its statutory requirement to enrol Miss Y into the Pension Plan under Section 3(2) of the Pensions Act 2008 or, alternatively, to have obtained written confirmation of her decision to opt out of the Pension Plan. The Pensions Ombudsman noted that the Employer should have been aware that "tier 2" qualifying earnings include overtime pay, and that it was incorrect to apply "basic pay" in order to determine Miss Y's eligibility for automatic enrolment. The Pensions Ombudsman determined that these failures amounted to maladministration on the part of the Employer.

The Pensions Ombudsman directed the Employer to enrol Miss Y into the Pension Plan with effect from the first date she achieved the minimum triggering amount for automatic enrolment purposes, and (upon receipt of Miss Y's required employee contributions) to pay the required employer contributions, together with any additional funds in relation to any loss of growth, had the contributions been paid at the correct time. The Employer was also ordered to pay Miss Y £500 in recognition of the significant distress and inconvenience caused to her. 


This determination is a good reminder of the importance of understanding the employer's automatic enrolment obligations, and to have appropriate governance systems in place to ensure errors of this nature do not arise. 

A point that was in contention in this case was whether Miss Y had chosen to opt out before the staging date. The Employer submitted evidence given by three employees who allege to have been present at a meeting where Miss Y indicated that she did not wish to join the Pension Plan. In its determination, the Pensions Ombudsman considered this evidence to be immaterial because the approach taken by the Employer was incorrect, as the opt-out must be in writing and in the required statutory form. This determination reinforces the importance for employers to obtain an employee's request to opt out in writing and in the required form. 

Link to Pensions Ombudsman Determination in Miss Y (PO-23113)

  1. The Pensions Regulator Compliance and Enforcement Quarterly Bulletin (October to December 2020): see here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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