​Workplace pensions and auto enrolment made clear

The government's TV advertising campaign portrays Workplace Pension and Auto Enrolment as a multi-coloured, friendly-looking monster that everybody ignores. Despite their efforts it's still scary to some, and plenty of businesses are lagging behind.

Workplace pensions in a nutshell

Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme, and also make contributions to it. It's called 'automatic enrolment'.

39 tips about how workplace pensions and auto-enrolment work

If you're confused by the whole workplace pension thing, here's our simple bullet point guide to the facts.

1. An employer puts a percentage of the employee's wages into the pension scheme automatically each payday
2. The employer usually contributes too, and benefits from tax relief
3. Most schemes release the pension from age 55 onwards, when most people are allowed to withdraw 25% of the money tax free, paying income tax on the rest
4. If the pension is small, the employee may be able to take it all in cash as a lump sum
5. Your employees can have a workplace pension on top of their State Pension
6. If your business already runs a workplace pension scheme and you don't already contribute to workers' pensions, you need to start doing so as soon as you automatically enrol them
7. If an employee has an HMRC certificate proving they have a lifetime allowance protection, you don't have to auto-enrol them
8. If an employee pays Income Tax, the government will add money to their workplace pension as tax relief
9. If an employee doesn't pay Income Tax, they still get tax relief as long as your pension scheme uses 'relief at source' to add tax relief to the pension pot
10. The amount everyone concerned pays in depends on the type of scheme, and whether or not the employees have been automatically enrolled in a workplace pension
11. The law says a minimum percentage of the employee's 'qualifying earnings' have to be paid into the workplace pension scheme. Qualifying earnings means either the employee's earnings before tax (£5,824 and £42,385 a year), or their entire salary before tax
12. If you offer employees a defined contribution scheme, the minimum amounts might increase in October 2017 and 2018. Most defined benefit schemes come with higher minimums
13. In other schemes your employees can choose to pay in more or less than the legal minimum. The employee can put in less as long as the employer contributes the legal minimum
14. A workplace pension scheme means employees' take-home pay will fall. At the same time they might be able to claim tax credits or extra tax credits in the next tax year, or be entitled to an income-related benefit or more of it, or reduce an outstanding student loan
15. If you run a defined contribution pension scheme and go bust, your employees won't lose out because defined contribution schemes tend to be run by pension providers, not employers
16. If the pension provider was authorised by the Financial Conduct Authority and can't pay their employees, they can claim compensation from the Financial Services Compensation Scheme
17. Trust-based schemes are run by trustees appointed by the employer. If you go out of business your staff still get their pensions, but the scheme's running costs have to be taken into account and may reduce people's payouts
18. With defined benefit pension schemes it's your job, as an employer, to make sure there's enough money in the fund to pay everyone what you've promised. Employees are usually protected by the Pension Protection Fund, which pays out 100% compensation if they're at pension age, otherwise 90%
19. Whatever type of workplace pension you provide, your employees can't cash in if they get into financial difficulties
20. If there's a shortfall in your business's pension fund because of fraud or theft, the Pension Protection Fund might be able to recover some of the cash
21. Employees can complain to the Pensions Advisory Service and Pensions Ombudsman if things aren't being run properly
22. Employees can see how much they've saved via an annual statement
23. Employees don't need to do anything to get tax relief on their pension contributions
24. For net pay schemes you take the employee's contributions at source before it gets taxed, and they only pay tax on what's left, no matter what tax code they fall under
25. For relief at source schemes you take the employee's pension contribution after dealing with the tax and National Insurance
26. Employees might be able to claim money back if they pay higher or additional rate Income Tax
27. Some schemes let employees choose someone else to get their pension if they die before pension age, either a lump sum or regular payments
28. If an employee changes jobs, their workplace pension goes with them, even if they stop paying in
29. Employees can join another workplace scheme if they get a new job, either making contributions to the old pension or combining the new and old scheme
30. If an employee worked for you for less than 2 years they might be able to get a refund of their contributions
31. Employee and employer contributions carry on throughout sick leave, holidays and paid maternity leave
32. If an employee is on maternity leave without pay you have to make pension contributions for 26 weeks, or longer if that's what their contract says
33. Employees on unpaid leave may be allowed to make contributions – it depends on your guidelines and those of the scheme
34. If someone wants to leave your workplace pension scheme and they weren't automatically enrolled, they'll need to check with you first
35. If they have been automatically enrolled, they can opt out. If they opt out within a month, you pay them back any money they've contributed
36. If they want to opt out later, a refund won't be necessary. The money will stay where it is until they retire
37. Employees can sometimes cut the amount they contribute to their workplace pension for a short time
38. If someone wants to opt back in, they need to write to you and ask. You don't have to agree if they've opted out then want to opt back in within 12 months
39. Once an employee has left your scheme they can be automatically enrolled again after 3 years, provided they still qualify

We'll help you set everything up

If you're short on time, long on responsibilities and haven't got your automatic enrolment act together yet, we can help.