Workplace pension rules UK

Workplace pension laws were introduced in the UK back in 2012.  It was just nine years ago that the Government saw that there was an ever growing issue that people simply weren’t saving enough into pensions to sustain their lives in retirement.   The result of this change is that every employer must establish, and contribute to, a workplace pension for every eligible employee.

Why is this important to know? Because as employees it’s good to know that we’re receiving all we are entitled to.

Pension Auto Enrolment

The introduction of auto enrolment saw each employer being given a “staging date” stating exactly when they had to meet the new requirements.

Larger companies established their workplace pensions first, with the roll out encompassing all small and new employers from 2017, when the law became blanket for all. 

The key element to the changes for employees was that, rather than employees having a choice as to whether to join the employer’s pension scheme, the opposite applied, and employees were automatically put into the pension without consultation.  Whilst this sounds arbitrary, it is a positive - you are being propelled into a position where your employer is required to pay into a pension scheme for you.

Who does the workplace pension laws apply to?

You are automatically enrolled into your workplace scheme if you meet the following criteria:

  1. You work in the United Kingdom 
  2. You aren’t already in a workplace pension scheme with your employer
  3. You are at least 22 years old, and under the State Pension age
  4. You are earning more than £10,000 a year (for the tax year 2021/22)

How much do employers and employees need to contribute?

The government guidelines on the minimum contributions which should be made into a workplace pension state that you, as the employee, put in 5% (which includes tax relief) and your employer puts in a minimum of 3%, making a total contribution of 8%.

Auto Enrolment Pension Rules

The first key fact of the auto enrolment rules is that, rather than employees deciding whether to join their employer’s pension scheme or not, they have to do the opposite and, once enrolled, opt out if they don’t want to be part of it.  

As far as pension contributions are concerned, there is a minimum requirement that 8% of qualifying earnings are contributed.  Of this 8%, the employer must contribute 3%.  An employer may choose to pay more, meaning that the employee could pay less to reach the target 8% minimum.  

Another fundamental is that a percentage of the eligible employee’s qualifying earnings is automatically added to their pension each month.   These contributions will be shown on the employees payslip, just as one would expect to see tax and National Insurance contributions. Employers must also pay a percentage into the pension at the same time.

If you have more than one job, each of your employers will have to enrol you in the pension if you meet the above criteria with each of them.  

It is the employer’s responsibility to ensure that their eligible employees are enrolled, the employee doesn’t need to do a thing.  The dates of the employer being obliged to meet the new rules varied between 1 January 2012 to 1 January 2017, and if an employer fails to fulfil the requirements, they are liable for fines.

Workplace Pension Laws For Employers

Any employer that has at least one staff member has responsibilities for that employee, including enrolling them into a workplace pension scheme if they’re eligible.

What is key is that this enrollment is automatic.  The employee doesn’t need to do anything to be a member of the workplace pension, for them, it just happens.  However, there are certain things that the employer can and cannot do.

Workplace pensions - what your employer can and cannot do

Our friends at state that  “All employers must offer a workplace pension scheme by law. You, your employer and the government pay into your pension.”

But the rules don’t stop there. 

Once an employee is enrolled into a pension scheme, the employer must:

  • Pay at least the minimum amount into the pension, on time, each month.
  • Allow employees to “opt out” if they ask, and if the employee opts out within the first month, contributions must be refunded to their sources.
  • Give employees the option to rejoin the scheme at prescribed times if they’ve opted out
  • If they have opted out, the employer must re-enrol employees back into the pension, at least every 3 years, assuming they still meet the eligibility criteria

Equally, the employer must not:

  • eEncourage or force employees to opt out of the scheme
  • Unfairly dismiss or discriminate anybody for choosing to stay in the workplace pension 
  • Suggest that somebody is more likely to be employed if they opt out of the pension scheme
  • Close down one workplace pension scheme without automatically enrolling all employees into an alternative one

What your employer must do

As we have already covered, your employer must automatically  put eligible employees into the pension and make the appropriate contributions towards it.  Those employees that aren’t eligible to be automatically enrolled can ask to join the pension, the employer cannot refuse.

However, in this scenario, the employer doesn’t have to contribute if the employee in question earns the following amounts or less:

  • £520 a month
  • £120 a week
  • £480 over 4 weeks

What your employer must tell you

Usually at the start of employment, and at the very least after the postponement period the employer must confirm the following facts to employees in writing:

  • Who the provider of the workplace pension is
  • The date that the employee is to be/was enrolled in the scheme
  • How much both employer and employee will contribute
  • How to leave the pension scheme
  • The format of how tax relief is applied to contributions, if relevant.

What employers can do

An employee may be enrolled into the pension from their very first day of employment or up to three months later.

This delayed start is also known as a “postponement period”, won’t usually exceed three months.

The employer must tell the employee of any postponement period and also allow the employee to join sooner if they request to do so.

Salary sacrifice

Salary exchange is an arrangement between employer and employee whereby the employee exchanges part of their salary in return for an employer pension contribution. 

As the salary is being exchanged, rather than paid directly, both the employer, and the employee, save National Insurance Contributions on the amount exchanged.

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