Providing a workplace pension scheme

If you are an employer, then in most cases you must offer a workplace pension scheme.

As well as being a legal requirement, a workplace pension is a valuable benefit for your staff and a great way to attract and retain the best people.

Various options are available, ranging from the government's own NEST scheme to your own unique pension scheme.

Do I need to provide a workplace pension scheme?

If you have any employees aged between 22 and the State Pension age, earning at least £10,000 per year, you must offer them a workplace pension scheme.

This applies to all UK-based employees – both those who normally work in the UK, and those who travel abroad for work but are still resident in the UK.

What is auto-enrolment?

All qualifying employees must be enrolled in your pension scheme by default. Employees have the right to opt out, but this must be their own decision and you are not allowed to pressure them to do so.

An employee may have a good reason to opt out if they have already saved close to the lifetime allowance, as exceeding this might give them a large tax bill. Otherwise, you should encourage all your staff to remain enrolled in the scheme if possible.

Anyone who does choose to opt out can still join it at any time, and you must re-enrol staff every three years to encourage maximum take-up of the scheme.

Who must contribute to a workplace pension?

As an employer you must contribute to your employees’ pensions, and each employee must also pay in to their pension.

The current minimum levels for contributions are 3% by the employer and 5% by the employee.

How do I provide a workplace pension scheme?

When it comes to providing a pension scheme for your employees, you have a number of options. You could use the government’s own scheme (NEST), another multi-employer pension scheme, or set up your own bespoke scheme.

Each option has pros and cons, so it’s important to find the best fit for you, your business, and your employees.

A financial adviser can help you weigh up the alternatives to find the right one.

What is NEST?

If you employ only a few staff, the simplest solution may be to use the government’s NEST (National Employment Savings Trust) pension scheme.

That said, there’s no limit to how many employees you can enrol in NEST, and you might choose it regardless of the size of your business.

The main advantages of NEST are:

• Simplicity as it’s quick to set up and easy for your payroll to use.
• No employer charges (at present).
• Diversity-friendly as communications are available in a range of languages.
• Good customer support.
• Government backing.

Possible disadvantages include:

• Employee charges may work out a bit steeper, with a 1.8% charge on each contribution (though the annual management charge of 0.3% is low)
• Limited flexibility as investment choices are restricted.
• Few retirement options (most employees will want to transfer to another scheme on retirement).

Broadly, from an employer’s perspective NEST may offer a very competitive and low-cost pension scheme with minimal hassle. Talk to your financial adviser and/or accountant about this option, which you can set up here.

However, if your aim is to attract and retain employees with a more impressive pension scheme, you may want to look at the alternatives.

What is the multi-employer pension scheme?

NEST is one example of a multi-employer pension scheme, but there are many others.

These are managed by private pension providers, and – as the name indicates – each of these schemes will be used by a number of different employers.

The range of employers using a particular multi-employer scheme may be quite diverse; however, they will usually be broadly similar in terms of things like size and turnover.

One of the key criteria to consider is the employer charge: how much does the scheme charge you for using it?

Sometimes, this will be a percentage, sometimes a flat fee, and sometimes, there will be no employer charge, which is good for you, but your staff may end up paying more.

Make sure the charging structure is a good fit for the size and nature of your business. When choosing a multi-employer scheme, one way is to look at companies that are similar to your own and see what pension schemes they are using.

You can then look into these schemes to see what their main features are, which should give you an idea of what to look for.

An even simpler way is to ask a financial adviser specialising in advising businesses on employee benefits.

What is a bespoke pension scheme?

If you can’t find a multi-employer scheme that satisfies you, a bespoke scheme may be an option.

Generally these are only used by bigger companies with large numbers of staff and very specific requirements, but if you’re curious to explore your options, a specialist financial adviser can explain them.

What to do when setting up a workplace pension scheme

1. Make sure staff can be enrolled in time

If you are setting up a new business, or about to take on staff for the first time, you should ideally ensure that your pension scheme is ready to go from the date your first employee starts work. If this isn’t practical, then for new businesses there is a three month grace period for you to get your scheme set up.

2. Choose a scheme

Consider carefully what benefits you want from your pension scheme, and shop around to find the most suitable one to support your business goals.

3. Write to your staff

You must notify all eligible employees that they have been enrolled in a pension scheme – you can find template letters here.

4. Set up employer and employee contributions

Decide how much you want to contribute as an employer, and arrange for employee contributions to be taken out of staff wages. Payroll software can handle both of these automatically – discuss this with your accountant.

5. Notify the Pensions Regulator

No later than five months after enrolling your first member of staff, you must inform the Pensions Regulator that you have set up your scheme, and confirm that it is compliant. You can do this online here.

6. Ensure that all new staff are automatically enrolled

It’s a good idea to provide pension scheme information in each new employee’s welcome pack.

And remember, being able to boast about your excellent pension scheme in the interview is a great way to attract the best people.

Get expert financial advice

Providing a workplace pension scheme is not just a legal obligation; it’s also a significant advantage for both your business and your employees.

By offering a pension scheme, whether through Nest, a multi-employer scheme, or a bespoke option, you are investing in your staff’s future while enhancing your business’s attractiveness and competitiveness.

By ensuring compliance with auto-enrolment regulations and making thoughtful choices about your scheme, you can retain top talent and demonstrate your commitment to their long-term well-being.

Let Unbiased match you with a financial adviser for expert financial advice to ensure you choose the best workplace pension scheme tailored to your business needs and goals.

If you found this article useful, you might also find our article on what to do if your employer hasn't paid your pension contributions informative, too.