When you hire a new employee, it is your responsibility to put a workplace pension scheme in place. This is known as automatic enrolment, introduced to assist people in saving for retirement.
What is a workplace pension?
Employees are entitled to state pension, once they reach a particular age. However, depending on individual circumstance, the amount obtained isn’t always enough.
The workplace pension used to be a benefit decided through the amount earned by the employee and the length of time they had been at the company. This is also something that they would have to manually opt into.
Nowadays, though, employees are far more likely to change employers every few years. Because of this, the workplace pension has also had to adapt.
Workplace pensions are now generally defined by the amount contributed whilst employed by the business, as well as investment performance. Automatic enrolment has also been beneficial in helping many to save for retirement for the first time.
What are the rules?
It is a necessity for an employer to enrol their employees into a workplace pension if they meet the following criteria:
- They are employed in the UK
- They aren’t currently in a workplace pension scheme
- They earn over £10,000 a year
- They are under the state pension age, but at least 22 years old.
These rules also apply to part-time workers, employees on a short-term contract, and those on maternity, adoption, or carer’s leave.
Despite of this, an employee can still opt into the scheme if they are under 22 years of age or earn less than £10,000. The employer will need to make contributions for them, and they won’t need to be enrolled automatically.
If employees are enrolled late into the scheme, the employer will have to backdate contributions so that they are the same as they would have been had they been made on time. In this case, employees are also required to make contributions.
How much do employers pay?
The contribution needs to be a minimum of eight per cent of a worker’s wages in total, for example, of which employer must contribute at least five per cent. They can contribute more, but employees must make up any shortfall.
Once subtracted from their employee’s wages, it is the responsibility of the employer to pay these to the pension scheme by the 22nd of the subsequent month.
The Government also adds to a workplace pension in the form of tax relief.
Of course, employers can choose to contribute more into an employee’s pension if they want to do so, something that can be useful for recruitment and retention. Need to know more about workplace pensions? Let’s chat.