Pensions

If your group employs staff, you will need to consider pension arrangements. Most employers already provide staff with access to some kind of pension arrangement. Since 01 Oct 2012 there is now a statutory duty (with phased auto-enrolment) for employers to ensure that a suitable work place pension scheme is offered to all employees.

If your new employee is eligible for automatic enrolment, you must automatically enrol them into a pension scheme and make contributions to that pension. If you do not have enrol a new employee by law, they can still join your pension scheme if they want to – you as an employer cannot refuse.

Employers do not have to contribute to a pension if the employee earns these amounts or less (as of 2023):

• £520 a month

• £120 a week

• £480 over 4 weeks

Once an employee in enrolled in your pension scheme, you must:

• Write them a letter including the following information

• The date you added them to the pension scheme

• The type of pension scheme and who runs it

• How much you will contribute and how much they’ll have to pay in

• How they can leave the scheme if they want to

• Pay at least the minimum contributions to the pension scheme on time – usually by the 22nd of each month

• Let the employee leave the pension scheme (called ‘opting out’) if they ask – and refund money they’ve paid if they opt out within 1 month

• Let the employee rejoin the scheme at least once a year if they have opted out

• Enrol the employee back in at least every 3 years if they’ve opted out and they are still eligible for automatic enrolment

As an employer, you cannot:

• Encourage or force an employee to opt out of the scheme

• Unfairly dismiss or discriminate against an employee 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

The most common types of pension schemes fall into two categories:

defined benefit schemes

defined contribution schemes

Defined Benefit Schemes

Defined Benefit (DB) Schemes offer the employee a pension amount based on their length of service and earnings. Examples include final salary or career average earnings related schemes. DB Schemes are becoming less used and are likely to be considered impractical for most organizations in the Third Sector.

Defined Contribution Schemes

Defined Contribution (DC) Schemes are essentially investment plans where benefits provided at retirement are based on how much has been paid in over the life time of the scheme, and how the chosen investment has performed. The employee (as policyholder) contributes to the plan, the money is invested and a fund is built up. Regular contributions may also be made to the scheme by an employer.

Examples of DC schemes include: money purchase schemes, group personal pension plans or group stakeholder pension schemes.

Stakeholder Pensions

Stakeholder pensions are a type of defined contribution scheme. They were originally designed for individuals that have no access to a workplace pension scheme, but they are suitable for a wide range of people including employees, workers on fixed contracts, people who are self-employed (and individuals who are working but can afford to make contributions). If you have five or more employees you must give them access to a stakeholder pension scheme unless you already offer another workplace pension scheme.

There is no obligation for employers to make contributions to an employee's stakeholder pension but you will have a statutory duty to do so when the auto-enrolment rules come into effect for your company. Stakeholder pension schemes can be used by employers for automatic-enrolment purposes provided the schemes meet the necessary criteria.

All Stakeholder Pension schemes must be registered with the Pensions Regulator.

Salary Sacrifice

Employers and employees can also agree to use ‘salary sacrifice’ (sometimes known as a ‘SMART’ scheme). If you do this, the employee gives up part of their salary and the employer pays it straight into their pension. In some cases, this will mean that both the employee and employer will pay less tax and National Insurance. 

Auto-enrolment and Work Place Pension Schemes

All employers have a statutory duty to automatically enroll eligible employees into a qualifying workplace pension scheme (including an employer’s contribution) if they have not already done so. 

National Employment Savings Trust (NEST)

The National Employment Savings Trust (NEST) is an online workplace pension scheme specifically designed to help employers meet their workplace pension duties and automatic enrolment. NEST is suitable for any size of UK organization employing paid staff, and can be used either on its own or alongside any other workplace pension scheme that an employer may already be using.