“Pension” and “Law” - now there’s two words that aren’t renowned for drawing in a crowd.  However, it’s important that we embrace a basic understanding of UK pension law, just to be certain that, as employees, we are getting a benefit to which we have rights, and also to know that our employer is being diligent.

The laws changed a relatively short time ago, and knowing what you’re entitled to could save you a costly catch up further down the retirement road.

The first thing to know is that UK Pension Law states that all employers must offer their eligible staff a pension scheme which both employer and employee pay in to.  That word “eligible” always sounds like it mightn’t be you doesn’t it?  Fear not, we’ll cover that in a moment.

Another fundamental point is that a percentage of the eligible (I said it again!) employee’s salary is automatically added to their pension every payday.  The contribution amounts must be shown on your payslip* along with the usual tax and National Insurance contributions. Employers must also pay a percentage into the pension at the same time.

*your payslip may look different if your pension is paid by what’s called Salary Exchange - in this instance the contribution will often look like it’s coming entirely from the employer.

What are the UK Pension Laws?

Generally, the change in pension laws have worked in the favour of us employees and have given access to pension savings for millions that mightn’t have otherwise prioritised pension planning.  

The changes we’re focussing on are the workplace pension laws which were introduced in the UK in 2012.  It was nine years ago that the Government acknowledged that there was a problem that, on average, people simply weren’t saving enough into pensions to sustain their lives in retirement.   

Workplace pensions were rolled out with, generally speaking, larger companies establishing theirs first and phasing in the requirements for smaller employers to establish theirs up until 2017, when the law became blanket for all.  Each employer was given a “staging date” stating the date at which they had to meet the new requirements.

‍

The Pensions Regulator (TPR)

The Pensions Regulator (TPR) is a public body, whose purpose is to protect the UK's workplace pensions. They ensure that employers, trustees, pension specialists and business advisers alike can “fulfil their duties to scheme members”.  TPR work with employers and those running pension schemes, so that those of us who are saving for retirement are reassured that we are saving safely.  By protecting pensions, TPR are ultimately protecting us as individuals (although “our” regulator is the Financial Conduct Authority - FCA).

TPR make sure that employers put their eligible employees into an appropriate  pension scheme and that they pay contributions into it. 

Source: thepensionsregulator.gov.uk

‍

Automatic Enrolment

The concept of Auto Enrolment is a little like NHS organ donation, but less painful.

The principal concept is that, rather than employees choosing whether to join their employer’s pension scheme, they have to do the opposite, and opt out if they don’t want to be involved.  It is the employer’s responsibility to ensure that their eligible employees are enrolled.

The dates of employer’s being required to meet auto enrolment compliance requirements varied from 1 January 2012 to 1 January 2017, and if an employer failed to fulfil the requirements, they were liable for fines.

What happens after being enrolled into a UK pension?

Great, you’ve started your new job!  But when does your pension start? 

It might start from your first day, or maybe three months later, maybe in line with your probation. 

A delayed start, or “postponement period” as it’s sometimes known, won’t usually exceed three months.  Either way, your employer will tell you this detail at the start of your employment, in writing, together with the following facts:

• The provider of the workplace pension arrangement
• The date you were/are to be enrolled in the scheme
• How much will be contributed by both employer and employee
• How to leave the pension scheme
• If and how tax relief applies to contributions
  

You will automatically be enrolled in the pension if you’re eligible (see below).  Taking no action (doing absolutely nothing!) keeps you in the scheme.  If you don’t want to be in the pension you may “opt out” - this is where you make a decision not to be in the pension and details of how to do this will be noted in the written detail that your employer provided when you started with them.  If you opt out in the first month, your contributions should be refunded.  

Opting out isn’t a decision to take lightly.  The contributions your employer would have made will be gone, they’re not going to be paid to you in a different form just because you chose not to join the pension; essentially it would be like giving up pay.  However, people do have good reasons to opt out, for example, maybe they simply can’t afford the employee contributions.

‍

Who is eligible to join a workplace pension in the UK?

Whether you work full-time or part-time, have one or two jobs, your employer has to enroll you in a workplace pension scheme if you meet these auto enrolment rules:

• You work in the UK 
• You aren’t already in a suitable workplace pension scheme
• You are at least 22 years old, but under State Pension age
• You earn more than £10,000 a year for the tax year 2021/22

If you have multiple jobs, each employer will have to enrol you in the pension if you meet the above criteria with them.  

Do UK pension laws protect the workplace pension fund?

The laws are there to protect us and your workplace pension fund is protected by the Financial Services Compensation Scheme (FSCS), as long as the provider was authorised. This means that if the pension provider goes out of business, compensation can still be paid by the FSCS.

As workplace pension schemes are run by pension providers, and not employers, your employer cannot access their employees’ funds for any reason.  This is important as your pension pot is your own, and the value of it is private information unique to you.  Your employer doesn’t know your bank balance, and nor should they, and the same level of protection applies to your workplace pension.

‍

Should you opt out of your workplace pension?

We talked earlier about being automatically enrolled into a workplace pension and, if you take no action you’ll stay in it throughout your employment, as long as you remain eligible.  For most of us, staying in a workplace pension is positive, particularly as your employer must contribute to it too.

The contribution your employer makes to your pension is part of your overall employment package. So as we said before, opting out is like turning down pay.

However, as with lots of things in life, one size does not necessarily fit all.   Whilst understanding the benefits, it still mightn’t make sense for some employees to be in the scheme.  This decision will be largely circumstantial, ie, if you’re dealing with unmanageable debt and simply can’t devote any money towards your pension contributions at the time.  

Employers are obliged to automatically re-enrol eligible staff every three years, although if you do opt out, you can choose to join the scheme before this time. At re-enrolment, it is possible to opt out again.

‍

Does a workplace pension replace a state pension?

A workplace pension is nothing to do with the state pension - the two are entirely separate. 

Currently (October 2021), the maximum amount of state pension available to somebody with a complete National Insurance payment record, is £179.20 per week, available from when they reach their state retirement age.  If we were to rely upon the state pension alone, most people would feel the often painful force of a fall in their income.

Running a workplace pension, or any other pension for that matter, to supplement the state pension, means that we’ll be able to enjoy a better retirement.

WorkPlace Pensions - What your employer must do

To summarise, the key points here are that, if you’re eligible, your employer must automatically enrol you into a pension and make contributions into it.

If your employer does not have to enrol you by law, you can still join their pension scheme if you want to, and your employer can’t say “no”.

However, if you earn the following amounts or less, then your employer doesn’t need to contribute for you:

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

Once you are enrolled into the pension scheme, your employer must:

• Pay at least the minimum to the pension scheme on time each month
• let you “opt out” (see above) if you ask - and refund money you’ve paid if you opt out within the first month
• Give you the option to rejoin the scheme at least once a year if you’ve opted out
• Re-enrol you back into the pension at least every 3 years if you’ve opted out, and you still meet the eligibility criteria

WorkPlace Pensions - What your employer mustn’t do

Your employer must not:

• encourage or force you to opt out of the scheme
• unfairly dismiss or discriminate against you for staying in a workplace pension scheme
• imply someone’s more likely to get a job if they choose to opt out of the pension scheme
• close a workplace pension scheme without automatically enrolling all members into another one