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How To Set Up A Workplace Pensions Scheme

workplace pensions

Did you know that it is a legal requirement for most employers in the UK to pay at least 3% of their employees’ salaries into a workplace pensions scheme? If you’re an employer who hasn’t yet set up a scheme, or if you’re not sure how to go about it, don’t worry, we have you covered.

In this article, we’ll discuss what a workplace pension scheme is, who is eligible and how to set one up. We will also explain how to choose a pension provider, the different types of schemes available and how to auto-enrol your employees.

What a is a Workplace Pension Scheme?

A workplace pension scheme is a type of savings plan that allows employees to save for their retirement. The money contributed to the scheme is invested, allowing it to grow over time. The extent of its appreciation depends on the investment options chosen by the scheme’s trustees.

It is a legal requirement for all UK employers to offer their employees a workplace pension scheme and to pay 3% of each employee’s salary into it. These are known as minimum contributions. The government has set up a scheme called NEST (National Employment Savings Trust) for smaller employers who don’t have their own scheme (see below), but most employers choose to offer a different pension scheme and pay more than the minimum contributions. This is usually because NEST’s investment options are more limited than those of other providers.

Why are Workplace Pension Schemes so Important?

A workplace pension scheme is important for several reasons:

  • It allows employees to save for their retirement, which can be a daunting task if left to individual responsibility.
  • Contributions are made from pre-tax income, so employees can save money on their taxes.
  • The scheme is managed by trustees, who are usually experts in investments. This means that the employees’ contributions are invested wisely and have the potential to grow over time.
  • Employers must contribute at least the minimum amounts, which helps to ensure that employees have a healthy retirement fund.

From an employers’ point of view, a desirable workplace pension scheme can help to attract and retain talented employees. A good pension is one of the most sought-after employment benefits so it can be an important factor when choosing where to work. This means that while the legal requirement for employers to pay is 3% of each employee’s salary, many employers offer higher contributions to make their scheme more lucrative.

Who is Eligible for a Workplace Pension?

To be eligible for a workplace pension scheme, an employee must meet the auto-enrolment criteria:

  • The employee is aged between 22 and the UK State Pension age (currently 66-68 depending on when you were born)
  • The employee must earn a minimum of £10,000 per annum
  • The employee must usually work in the UK (this also includes employees whose job is based here but who travel overseas for their work duties.

retirement plan

How to Choose a Pension Provider

There are many different providers of workplace pension schemes and it can be difficult to decide which one is right for your business. The main things to consider are the investment options available and the costs of setting up and running the scheme.

The UK government’s website has a lot of information about how to set up a pension scheme and what to look out for in a provider. Another useful website is The Money and Pensions Service (previously known as the Pension Advisory Service), which has some helpful tools that can help you to understand the different types of pensions available and make an informed decision.

Which are the Most Common Types of Workplace Pension Schemes?

There are two main types of workplace pension schemes: defined contribution and defined benefit. The main difference between the two is how the pension is calculated.

With a defined contribution scheme, the amount of money you receive in retirement depends on how much has been contributed to the scheme and how it has been invested. This can be a bit of a gamble, as the value of investments can go up or down over time.

With a defined benefit scheme, the amount of money you receive in retirement is based on a fixed formula that takes into account things like your salary and length of employment. These types of schemes are less common because they can be more costly for employers to run.

How to Auto-Enrol Employees

The first step in setting up a workplace pension scheme is to auto-enrol employees. This means that you have to set up a system for automatically enrolling your eligible staff into the scheme and making contributions on their behalf.

Once you have chosen which provider you want to use, they will guide you through this process but it usually involves:

  • Asking for your employees’ details, including salary and date of birth
  • Setting up payroll deductions (if applicable)
  • Opening an account with the provider for each employee who has been auto-enrolled

The Pensions Regulator can also give you advice about how to auto-enrol your employees. They also have a wealth of free resources that can help you to make sure you are compliant with the law and avoid any fines.

How to Notify Employees About Your Pension Scheme

Once your employees have been auto-enrolled, they will receive information about their pension scheme from both the provider and yourself. This is usually done in writing or via email.

You must provide your employees with the following information:

  • The name of the pension scheme
  • The provider’s contact details
  • How to set up contributions (both you and your employees can contribute)
  • When contributions will start and stop (usually they will continue until the employee leaves employment or reaches retirement age)

All of this information must be provided in a way that is easy for your employees to understand so that they can make an informed decision about whether or not they want to stay in the scheme.

What if Your Employees Decide to Opt Out?

If your employees decide to opt out of the scheme, they can do this at any time. They can also opt back in if they change their mind later on down the line or decide that they want to start contributing again after taking some time off work (eg maternity/paternity leave).

The important thing is to make sure your employees are aware of their rights when it comes to opting out and how to do so. As the employee, it is your responsibility to let them know this. If you don’t offer your employees the chance to opt out, then they may be able to take legal action against you for failing in your duty of care as an employer.

retired couple

How Do You Set Up Employer and Employee Contributions?

The amount you and your employees contribute to the pension scheme will vary depending on the provider you choose. However, most schemes require at least a minimum contribution from both parties.

As an employer, you are legally required to pay in a minimum of 3% of each employee’s salary into the scheme but this can be higher with certain schemes. Your employees are legally required to contribute at least five per cent of their salary, although this can also be higher.

You can choose to contribute more than the minimum if you wish, and your employees may also want to do so. It’s important to remember that the more contributed by yourself and your employees, the more money they are likely to receive in retirement.

You and your employees can either pay into the scheme monthly, quarterly or annually. The provider will usually give you a choice of payment methods and set up a schedule for you so that you don’t have to worry about it.

How Do You Inform the Pensions Regulator?

Once you have set up your workplace pension scheme, you need to register it with the Pensions Regulator. This is a legal requirement and if you don’t do so then they may be able to fine you or even force your business into liquidation!

To register your scheme, simply visit their website and fill out the online form. It shouldn’t take more than a few minutes and they will provide you with all the information you need to get started.

How Do You Add New Staff to the Scheme?

If you have any new employees, you need to add them to your pension scheme as soon as possible. This is a legal requirement and it’s important to do so in order to avoid any penalties from the pensions regulator.

To add new staff, you simply need to contact your chosen pension provider and give them their name, date of birth and National Insurance number. They will then add them to the scheme and set up a payment plan for them.

How are the Funds Invested by the Trustees?

The trustees of the pension scheme are responsible for investing the funds. They will usually invest in a variety of different assets, such as shares, property and bonds, to ensure that the money is being used in the best way possible.

They will also take into account the age and retirement expectations of your employees when making these investments. This is so that the money is available when they eventually retire. Different pension schemes carry varying levels of risk, so it’s important for you as an employer to ensure that this suits all employees involved in the scheme.

What if You Want to Change Providers?

If you decide that you want to change your pension provider at any time, then you can do so. This is usually a simple process and doesn’t take too long to do.

It’s important to remember that if you do change providers, then all employees will need to be informed of this and they may want some time to consider whether or not they wish their pension funds transferred over from one provider to another.

What is NEST?

NEST (the National Employment Savings Trust) is a government-backed pension scheme that was set up in 2010. It’s one of the most common types of workplace pension schemes and is usually a good choice for small businesses who want to offer their employees a scheme but don’t have the funds to set up or pay into one themselves.

NEST is a type of defined-contribution scheme, which means that you and your employees both make regular contributions into the scheme. The amount you contribute will depend on how much money each employee earns and how long they have worked for you.

NEST works in a similar way to other defined-contribution schemes, with one important difference: it has no annual or lifetime contribution limit. This means that if you pay into the scheme every year from now until retirement age, there is no maximum amount that you will be able to contribute in total.

One downside of NEST is that it can be more expensive than some other providers, so it’s important to do your research before signing up.

What are State Pensions?

The state pension is a weekly payment that the government gives to people who have reached retirement age and are no longer able to work. Retirement age differs for people born in different years but it is currently between 66 and 68 years old.

You will only be eligible to receive your state pension if you have made National Insurance Contributions for at least ten years throughout your working life. If you haven’t done so, then you won’t get any money from the government when you reach retirement age and will need to rely on other sources of income such as a private pension or savings.

The amount of state pension that people receive differs depending on how much they have paid into the system throughout their lives and when they were born.

If you are eligible for a state pension, then you will receive it automatically once you reach retirement age. You don’t need to do anything in order to receive your money as it is collected directly from the government via direct debit or bank transfer each week.

retired people

Final Thoughts

There are many different types of workplace pensions schemes available, so it’s important to do your research before deciding which one is right for you and your employees. Remember that your employees will be relying on their pensions when they retire, so it’s important to make the right decision for everyone involved.



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