The Employer’s Guide to Setting up a Workplace Pension

If you’re about to hire your first member of staff, then working out how to set up a staff pension is a big (and legal) priority from the minute you start hiring.

As an employer, you’ll need to open a ‘workplace pension’. Who qualifies for this, and how you auto-enrol them can be a bit complex – so we’ll explain everything you need to know, as well as where you can get advice.

What is a workplace pension?

The UK government introduced workplace pensions to help employees save more money for their retirement, with contributions deducted from their wages each month.

The bonus of a workplace pension from an employee’s perspective is that you (the employer) also make contributions towards their pension pot. The current minimum rate for employer contributions is 3%, but you can choose to pay more.

Who needs to set up a workplace pension, and how?

As an employer, it’ll be up to you to provide a workplace pension scheme for eligible staff. You must do this as soon as your first member of staff starts working for you; known as the ‘duties start date’.

You can use The Pensions Regulator guide for employers to help you work out what to do and when, but it’s also well worth doing your own research to find the best pension schemes for your employees. Just remember to check with the provider that they meet the necessary requirements.

What is automatic enrolment and how does it work?

Automatic enrolment means that any employee who is eligible to join is made a member of a workplace pension automatically, without asking to join.

Staff can choose to opt out if they want to, but you’ll need to re-enrol them every three years – although they can opt out again if they’re still not ready (so you might find yourself doing the pension hokey cokey).

Employees can currently access their workplace pension at 55, but this will change to 57 in early 2028. Workers can opt out at any time, but it’s always best to remind them they’ll be missing out on both your contributions as their employer, as well as any government tax relief.
 

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Which of my employees are eligible for auto enrolment?

Certain members of staff may not meet the eligibility criteria yet – for example, because they don’t work enough hours with you, or they’re under the age requirement. They’ll qualify for pension auto-enrolment if they:

  • Are aged between 22 and the current State Pension age
  • Earn £10,000 or more
  • Work in the UK (or they’re based in the UK, but also travel abroad for work)

You might have staff who don’t qualify at first but eventually become eligible for enrolment. For example, a part-time member of staff becomes full-time and earns over the threshold, or someone who turns 22 whilst working for you. Put them into your pension scheme if their status does change, and write to them within 6 weeks of meeting the criteria.

How much do I pay towards my employees’ pension?

This varies depending on which work pension scheme you’ve chosen, but the legal minimum you can contribute is 3% of your employee’s earnings.

Minimum Pension Contribution Rates
The minimum employers need to pay 3%
The total minimum pension contributions 8%

 

What is the minimum pension contribution for employees?

 
If you spotted that employees are missing from the table above – top marks! The minimum amount of pension contributions for an employee is 8%, and you (as the employer) must pay at least 3%, leaving the employee to cover the remaining 5%. If you decided to contribute more, your employee could contribute less, as long as the minimum total is still 8%.

 

Do I need to pay employer pension contributions if my employee opts in voluntarily?

 
Employees who qualify for auto-enrolment are known as ‘eligible jobholders’. If your employee isn’t eligible for pension auto-enrolment but decides to voluntarily opt-in, you might still need to contribute the minimum amount towards their pension. Our table below shows who is entitled to employer contributions if they’re not eligible jobholders, but enrol voluntarily.

Aged 16 – 74 Aged between 16 – 21 or
State Pension Age – 74
Entitled worker
  • Can enrol voluntarily
  • Earns less than £6,240
  • Not entitled to employer contributions
Non-eligible jobholder
  • Can enrol voluntarily
  • Earns between £6,240 – £10,000
  • Entitled to employer contributions
  • Can enrol voluntarily
  • Earns £10,000 or more
  • Entitled to employer contributions

Top tips for auto-enrolment

There are some steps you can take to help auto-enrolment go as smoothly as possible.

 

Check if you have eligible staff and know your staging date

 
You’ll need to assess exactly which of your employees meet the requirements to be auto enrolled, as well as your ‘staging date’. The Pensions Regulator should write to you and let you know when this is

If you need to know your staging date urgently, you can enter your PAYE reference into the Pensions Regulator’s Staging Date Calculator.

 

Make sure you have suitable payroll software

 
This shouldn’t be too hard as the majority of payroll software is compatible with automatic enrolment and should work out who you need to put into a pension scheme, how much will be deducted, as well as how much you need to pay your staff.

 

Choose the pension scheme you’d like to use

 
You can either look for a scheme yourself or get some help from an advisor. Take some time to understand the contribution rates and the impact this has on costs.

You’ll need to provide a formal assessment on your staging date so you’re aware of how much you’ll be contributing each month. Remember the minimum contribution is 3% but you may have picked a scheme where you contribute more.

Can I switch workplace pensions?

If you find a better workplace pension for your staff then you can decide to make the move, but it’s important your employees are completely aware so they can ask questions before the switch.

Lots of pension providers send a welcome pack for your staff to take a look at, which can help you explain the reasons behind the change and avoid any anxiety!

Recording payments and deductions

It’s vital that your business records any payments and deductions in its bookkeeping. If you use bookkeeping software like Pandle for example, you can simply enter wage adjustments for any pension contributions that you make. You’ll need to ensure this type of data is correct to avoid any disputes. By law, you must keep records of the contributions you pay to your pension scheme for at least six years.

 
Need help recording your employer pension contributions? Create your free Pandle account today and see how we can help you.


Rachael Anderson

A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!


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