Workplace pensions for small businesses

Does my business need to have a workplace pension scheme?

If you employ staff, you’ll have automatic enrolment duties from the date your first member of staff starts working for you. This is known as your duties start date.

You must automatically enrol eligible workers into a qualifying workplace pension scheme and make employer contributions.

A worker will normally need to be automatically enrolled if they:

• are aged between 22 and State Pension age
• earn at least the current automatic enrolment earnings threshold
• normally work in the UK.

Workers who don’t meet all these conditions may still have the right to opt in to or join a workplace pension. Depending on their age and earnings, you may also have to make employer contributions.

You must continue to assess your staff because someone who isn’t currently eligible may become eligible later, for example because their age or earnings change.

What is automatic enrolment?

Automatic enrolment means putting eligible workers into a qualifying workplace pension scheme without them having to ask to join.

Eligible workers can choose to opt out after they’ve been enrolled, however, you must not encourage or persuade employees to opt out.

Your duties don’t end after you’ve enrolled your staff. You must continue to assess your workforce, make the required contributions and generally re-enrol eligible staff approximately every three years if they’ve previously opted out or stopped paying into the scheme.

You’ll also need to complete the relevant declaration of compliance with The Pensions Regulator.

How much will a workplace pension cost my business?

You’ll normally need to contribute towards the pension of workers you’ve automatically enrolled and certain workers who choose to opt in.

For many automatic enrolment schemes, the minimum employer contribution is 3% of qualifying earnings, with a minimum total contribution of 8%. Your pension scheme may use a different basis for calculating contributions, provided it meets the automatic enrolment requirements.

Qualifying earnings can include:

• salary and wages
• overtime
• bonuses and commission
• Statutory Sick Pay
• statutory maternity, paternity and adoption pay
• other statutory payments.

The qualifying earnings limits are reviewed by the government, so check the current figures when calculating contributions.

Your payroll software may calculate pension contributions and deductions for you. You must make sure contributions reach your pension scheme by the required deadline. Late or incorrect contributions may need to be backdated and could result in enforcement action.

What if I don’t have a workplace pension scheme?

If you need to automatically enrol staff and don’t already have a suitable workplace pension, you’ll need to choose a scheme that meets the automatic enrolment requirements. The Pensions Regulator website offers employers an online tool, which may tell you whether you need to set up a workplace pension scheme.

You will generally need to:

1. Choose a suitable pension scheme that can be used for automatic enrolment.
2. Assess your staff to identify who needs to be automatically enrolled and who has a right to opt in or join.
3. Enrol eligible staff and make the required contributions.
4. Write to your staff explaining how automatic enrolment affects them.
5. Complete your declaration of compliance with The Pensions Regulator.
6. Meet your ongoing duties, including monitoring eligibility, paying contributions and re-enrolling eligible staff when required.

What if I’m self-employed?

If you’re self-employed and don’t employ anyone, the automatic enrolment rules won’t require you to set up a workplace pension for yourself.

However, you won’t normally have an employer making pension contributions on your behalf, so you may want to make your own arrangements for retirement saving.

One option is a personal pension, where you make contributions that are invested by a pension provider. Depending on your circumstances, your contributions can qualify for tax relief.

How do pensions for the self-employed work?

If you’re self-employed, you can choose a personal pension and decide how much and how often you want to contribute, subject to the provider’s terms.

Common types include:

• standard personal pensions, which usually offer a selection of investment funds
• stakeholder pensions, which must meet particular requirements on matters such as charges and contributions
• self-invested personal pensions (SIPPs), which generally offer a wider choice of investments and greater control over how your pension is invested.

Personal pensions are normally defined contribution pensions, so the amount eventually available will depend on factors including how much is contributed, investment performance and the fees charged. It is important to understand that investments can fall as well as rise.

Pension contributions can qualify for tax relief, subject to the relevant rules and limits. The amount of tax relief available depends on your earnings and circumstances, and there is also an annual allowance for pension savings.

Because pension and tax rules can change, check the current rules before deciding how much to contribute.