Everything you need to know about workplace pensions in the UK

author avatar

PayFit

23 April 2019

workplace pension

Work place pensions in the UK can be a little confusing. Who is eligible? What are the employee’s contributions? What are the workplace pensions employer responsibilities? There are a lot of questions that you need to ask yourself about pension scheme payroll.

Current laws 

Under current laws, all eligible employees in the UK are enrolled into a workplace pension scheme. This is automatic – there is nothing that the employee needs to do, and pension contributions will come out of their monthly pay packet straight away.

Compulsory workplace pensions

In most cases, the employer also adds a contribution to this pension scheme. As automatic enrolment is the law in the UK, this means that if you are a business owner, it is your responsibility. This includes ensuring that it is set up for your employees, and that the money is taken out of their pay in the correct percentage every month by your payroll system. As the contributions come out of an employee’s wage before tax, their income is classed as lower.

 

This can provide several benefits to employees:

 

  • They can become eligible for tax credits or an increase in tax credits.
  • They can become eligible for an income an income-related benefit or an increase in benefit.
  •  A reduction in the repayment amount of their student loan each month.

What makes an employee eligible? 

The vast majority of workers will be eligible for a workplace pension scheme. All of these people would have been enrolled for a pension scheme by February 2018 if they weren’t in one before. To be eligible, and employee must:

 

  • Be at least 22 years old;
  • Not yet at State Pension age;
  • Earning a salary of at least £10,000* per annum (under current rules);
  • Normally working in the UK under a contract of employment.

*this will differ depending on if you pay weekly, fortnightly, or monthly. 

Workplace pensions – employer responsibilities

As an employer, it is your responsibility to ensure that all of your eligible workers are enrolled in a pension scheme as soon as they are eligible. You must also contribute the minimum amount to this scheme. If you decide to give more, you must then give your employees the option to decrease the percentage that they contribute each month.

Workplace pensions contributions 

Workplace pensions contributions can be a little confusing to figure out. To break it down, by April 2019, all employers will be contributing a minimum of 3% to their employees’ wages. This is the final part of the roll-out scheme.

 

Employees also contribute 5% from their salary.

Opting out 

Employees can choose to opt out of a workplace pension scheme at any point after their first pension contributions have been deducted, although they are not always eligible to get their contributions back. In this case, their contributions and the contributions by the employee are held by the pension scheme provider. As an employer, you must re-enrol an employee that has opted out every three years – if they are still eligible.

Pension Scheme Payroll

It can be difficult for a payroll scheme to manage all the changes to pensions that can occur. 

 

It is important that this system runs smoothly, as it effects your employees pay packets and can affect you from a legal standpoint. Many things can vary between pension scheme providers as well.

 

This is why having a payroll software provider can be such a useful thing. As part of a payroll service, a workplace pension will all be taken care of automatically. Employees will be able to view their contributions, as well as their employer contributions, through a password-protected system.

 

 

PayFit does all of this and more. It is tailored for every type of employee including full-time, part-time, and apprentices. The system will know if they are eligible or not for a pension, what their contributions should be, and if there are any changes to this throughout the year. 

 

Learn more about PayFit