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Okay, we get it! Workplace pensions in the UK can be a little confusing. Understanding who is eligible, the employer responsibilities and the employee contributions is not always easy. That's why we've produced this short piece to answer some of the most common queries.

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 correct contributions are made each month. 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-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 in a pension scheme by February 2018 if they weren’t in one before. To be eligible, an employee must:

  • Be at least 22 years old;
  • Not yet at State Pension age;
  • Earn a salary of at least £10,000* per annum;
  • Work in the UK under a UK employment contract.

*This will differ depending on if an employee is paid 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 tricky to figure out. To break it down, by April 2019, all employers must contribute a minimum of 3% to their employees’ wages. Employees must 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 – providing that they are still eligible.

Pension scheme – payroll

It can be difficult for a payroll service to manage all the different pension variables.

It is important that this system runs smoothly as it affects your employees' pay packets and can affect you from a legal standpoint. Furthermore, many things can vary between different pension scheme providers.

This is why having a reliable payroll provider can be such a useful tool. 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's 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.

Want to find out more about PayFit? Book a demo with one of our payroll experts!

PayFit blog author

PayFit blog author