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Workplace pensions and automatic enrolment

Every limited company that employs workers and pays them a salary needs to be aware of their duties to enrol eligible workers into a workplace pension scheme.

What is a workplace pension?

A workplace pension is a pension scheme set up and run by employers to help workers save for their retirement. Changes to pension rules means that any worker that is eligible to join the scheme must be automatically enrolled into it by their employer.

Under the scheme, the worker, employer and government contribute towards the workers pension pot. 

What is automatic enrolment?

To get more workers to save for their retirements, the pensions regulator require all eligible workers to be automatically enrolled into their employers workplace pension scheme. 

For employees, the process is automatic; they do not need to do anything, but for the employer it is an additional administrative process that you need to be aware of. 

As the director of a limited company, if you operate a PAYE scheme and pay salaries you need to take steps to make sure eligible employees are enrolled into a pension scheme. Even if you already pay contributions into a pension scheme for your employees, you still need to check if it is suitable for automatic enrolment.

If you are required to provide a workplace pension scheme (you are deemed to have eligible employees) you will need to:

  1. set up a pension scheme

  2. enrol your eligible employees into the pension scheme

  3. declare compliance to the Pensions Regulator

  4. operate the scheme and make payments

Using a workplace pension for your retirement

If you are considering using a workplace pension for your own retirement plans, always seek advice from an independent financial advisor. Accountants are not authorised to provide financial advice on pensions.

Who is eligible for automatic enrolment?

We’ve outlined employees that can either opt in or are automatically eligible for a workplace pension. These rules are defined by the pensions regulator and must be followed to ensure compliance. 

Weekly gross earningsMonthly gross earningsAge (SPA = State Pension Age)
16 – 21yrs22 – SPASPA – 74
£112 and below£486 and belowHas a right to join a pensionHas a right to join a pensionHas a right to join a pension
Over £112 up to £192Over £486 up to £833Has a right to opt inHas a right to opt inHas a right to opt in
Over £192Over £833Has a right to opt inAutomatically enrolHas a right to opt in

What this means for your company

Automatically enrol

You must enrol these employees into your workplace pension scheme and make regular contributions as their employer. You do not need to seek their permission. The employee can decide to opt out of the workplace pension however they can only do this after they have been enrolled.

Has a right to opt in

Employees in this category can ask to be enrolled in the workplace pension scheme and you must allow them to do so. This means you will be required to make employer contributions.

Has a right to join a pension scheme

If they ask to join your pension scheme, you must provide a workplace pension scheme however as their employer you don’t need to make contributions.

Are all employers required to operate a workplace pension?

Your company may not have any employees as you may just have directors. You won’t have any duties if your company meets one of the following criteria:

  1. you’re a sole director with no other staff; or

  2. your company has a number of directors and none of them have an employment contract; or

  3. your company has a number of directors and only one has an employment contract.

Contract of Employment

A Contract of Employment is a contract between the company and its director(s). It could be a written, verbal or implied contract between an individual and the company.

The contract will set out an individual’s employment rights as well as their responsibilities and duties. It is an agreement under which a person consents to perform certain duties as directed and controlled by an employer in return for an agreed wage or salary.

If you have or are going to put a Contract of Employment in place between the company and any of its directors, you may have workplace pension duties towards those directors, this includes giving them the opportunity to opt into a workplace pension.