It makes sense to spend money now rather than saving it for retirement, such as on expensive products or trips. However, putting retirement savings first means having a pension that offers a respectable level of life. Workplace pension plans may help with that.
By automatically contributing a portion of their income to a pension fund and, in many circumstances, adding a little more, you assist your workers in saving.
This article, explains the benefits of offering workplace pension plans to your workers, choosing a pension plan, and your obligations as an employer.
Employment obligations
Since 2017, you must have a workplace pensions plan in place as of the day your first employee begins working for you, which is known as the “duties start date.” The term for this is automatically enrolling.
All new employees must sign up for the program, providing they are:
- Between the ages of 22 and the State Pension age
- earning at least £10,000. (or the equivalent in a pay period)
- Regular employment in the UK
You must then monitor any changes to eligibility and maintain records of:
- the enrollees’ names, ages, residences, and income
- the day on which contributions are received
- Requests to enter or depart.
Your registration or pension scheme reference number
Except leave requests, which must only be retained for four years, all of these documents must be preserved for six years.
Finally, you must re-enroll employees who have left your program every three years.
Additionally, you must submit an online re-deceleration form to the Pension Regulator.
How much do I contribute to a worker’s pension?
Employees must get at least 3% of their pensionable income from you. If you have established a “qualified pension,” you may limit the pensionable earnings into their pension pool to between £6,240 and £50,270 (for the tax year 2022–2023). Using a “Qualified pension” does imply that all bonuses, commissions, overtime, sick pay, and parental leave pay are included in the definition of pensionable earnings. Your employee must pay a minimum of 5%.
When choosing a pension provider, you may either pick a “qualified pension plan” or create one expressly for your workers’ requirements. This is something that the pension provider can assist you with.
When an employee receives statutory maternity pay, there are unique regulations regarding company pension contributions. The employer contributions must be determined by the pre-maternity leave pay or earnings. In other words, the value of the employer’s contribution does not diminish while a worker is on maternity leave.
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Can employees leave the pension scheme?
Yes, employees can ask to leave the pension scheme at any time, and you must remove them within one month of their request.
If this is within one month of them becoming an active member of the pension scheme (their opt-out window), you must refund any contributions they’ve made in that time. The pension provider will also refund the contributions made by you and the employee. If they leave after the opt-out window has closed, the funds will remain in their pension until they retire.
Why it’s an attractive benefit to offer employees
A workplace pension scheme might be a legal requirement, but it’s also the most commonly advertised work perk on job adverts, according to a recent survey from Moneypenny. Of 1,000 analyzed adverts, 41% offered a pension as a benefit, putting it ahead of both working from home (22%) and flexible working (12%).
Even though it’s obligatory, it’s good to advertise to potential employees that you’re meeting your responsibilities as an employer.
Choosing a pension scheme
There are several factors you should pay attention to when choosing a workplace pension scheme.
Can it be used for automatic enrolment?
To be eligible scheme, your employees can’t be asked to do anything to join the scheme. The pension regulator has a list of suitable pension providers.
How much does it cost?
Both you and your staff will be charged to use the scheme, so it’s important to compare the costs of various providers and find one that complements the way you run your business.
For example, some schemes charge you a monthly fee, and some charge one up-front cost, while some charge lower paid staff and lower management fees than bigger earners. Staff may also be charged an exit fee if they leave the scheme. The costs are usually deducted from the pension contributions made.
Is it regulated by the Pension Regulator?
This is important as it’s proof that the scheme has a high standard of administration.
What tax relief method does it use?
There are two types: relief at source (tax relief is claimed from HMRC by the pension provider) and net pay arrangements (you calculate Income tax after pension deductions). Choose whichever works best for your employees and their salaries. The pension provider will determine which tax relief method is used.
As per the pension regulator the method you choose will affect your lower or higher-paid employees in different ways:
- An employee who does not pay income tax will not receive any tax relief in a Net Pay Arrangement, but Net Pay Arrangement tends to have lower member changes.
- Employees who is subject to higher or additional Income Tax will receive that additional relief directly via a Net Pay Arrangement. If they are in a Relief at Source pension scheme they can claim their full tax relief by completing an Income Tax self-assessment.
Does it offer investment choices?
Any pension scheme used for auto-enrolment must offer a default investment fund, though the staff who’d like to choose their own investments should be able to do so
Using payroll software for automatic enrolment pension schemes
Using HMRC-recognised payroll software that’s set up for automatic enrolment is a great way to manage your ongoing pension responsibilities as an employer. It can:
- Store the date of birth, salary, National Insurance number, and contact details of eligible employees
- Automatically send these details to your pension scheme provider
- Calculate pension contributions for each pay period
- Calculate the correct tax relief
- Track requests to leave or join the pension scheme
- Monitor the eligibility status of employees
- Generate payslips and other documents
Not all payroll software is equal when it comes to pensions. Make sure you thoroughly investigate the features of any payroll software you consider using before committing to a subscription.
Educating staff about the program
The law mandates that you notify your workers in writing that they have been enrolled in a pension plan no later than six weeks after you begin your obligations.
The letter should outline the operation of the pension plan, the recipient’s date of enrollment, and any additional details from the provider. An informational packet should be available from your supplier, which you may distribute to your staff. You may utilize the draft templates provided by the pension authority.
Regulation and conformity
You must file a statement of compliance within five months of the date your obligations began, outlining how you’ve complied with your obligations as an employer to the Pensions Regulator. You should be able to do this online in as little as 15 minutes, provided you have your PAYE reference and accounts office reference numbers.
After that, all you need to do to maintain compliance is fulfill the requirements outlined in the employer duties section above.
