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How to set up a workplace pension

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Last editedMar 20213 min read

If you’ve registered as an employer with HMRC, you’ll need to set up a workplace pension scheme as soon as any eligible staff start working for you. Find out what your duties are and how to get started with our helpful guide.

What is a workplace pension?

As a result of a government initiative, all employers are required by law to provide a workplace pension scheme for qualifying employees. A workplace pension is designed to help employees save money for retirement.

Once the scheme has been set up, a percentage of each employee’s salary is automatically paid in, alongside a workplace pension employer contribution. The idea is that this pension pot grows over time, ensuring that employees have sufficient savings for retirement. Both employees and employers must meet workplace pension minimum contributions as part of the agreement.

One thing to note is that while employers are legally required to offer a workplace pension, employees can choose to opt out. For example, they might prefer to invest their money elsewhere or pay into a private pension scheme. However, if they do so, they’ll miss out on employer contributions as well as government tax relief.

Who can enrol in a workplace pension scheme?

While employees can opt out of a workplace pension scheme, there are a few eligibility requirements for those who want to enrol. You’ll need to enrol and make employer contributions for all staff who meet the following requirements:

  • Aren’t already enrolled in a pension scheme

  • Earn at least £10,000 per year

  • Are aged between 22 and the State Pension age

  • Normally work within the UK, including those who travel abroad for work

Keep in mind that enrolment duties start from the first day that a new employee joins your business. If you enrol them after this date, you’ll have to make up for the missed contributions both from yourself as well as the employee. There might also be fines and penalties to pay.

If a staff member becomes newly eligible due to age or earnings, you’ll have a six-week grace period to add them into the pension scheme.

How to set up a workplace pension scheme

To get started with setting up your workplace pension, you can look at the Pensions Regulator website to obtain a clear plan of action. This online tool asks you a few basic questions, walking you through each step of the process. Those that already have a scheme in place can also find out if it meets current pensions regulation and guidance.

Workplace pension contributions

You’ll need to pay a minimum of 3% of your employee’s earnings into the pension scheme. The exact amount will depend on the scheme you’ve chosen, as there may be different definitions of qualifying earnings.

For most pension schemes, this amount is currently the total pre-taxed earnings between £6,032 and £46,350 per year. Earnings include any of the following:

  • Salary or wages

  • Overtime pay

  • Statutory sick pay

  • Statutory maternity, paternity, or adoption pay

  • Bonuses and commission payments

Once you’ve defined qualifying earnings for the employee and worked out the contribution amount, you can set up your pension system to automatically make these contribution payments.

Workplace pension minimum contributions must be arranged with payroll. These come out of the staff’s pay every month and are deposited into the pension scheme. If any payments are missed, they’ll need to be backdated to keep up with the minimum payment plan. Along with payroll deductions, you’ll also need to deposit your workplace pension employer contributions to match.

Managing workplace pension schemes

If you follow all government guidance, your workplace pension scheme should operate smoothly with automatic payments. At the same time, you’ll need to carry out a bit of maintenance to ensure everything is working as it should. This includes checking if staff need to be re-enrolled in the plan, managing requests to leave or join the scheme, and checking if existing staff need to be added due to changes in status.

As with any payroll activity, you’ll need to keep accurate, up-to-date records of what you’ve contributed. These should include:

  • Identification of all staff enrolled in the pension plan

  • When workplace pension contributions are paid in

  • Requests to join or leave the scheme

  • Your workplace pension scheme reference number (PSR)

By keeping detailed records, you’ll ensure that you’re staying current with all legal responsibilities and workplace pension employer contributions.

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