How Do Workplace Pensions Work?

By 2018, all UK employers will be required by law to automatically enroll eligible members of staff into a workplace pension scheme. This is to prepare them for when they choose to retire from work.

The auto-enrolment system was initially introduced in October 2012 as a legal requirement for large organisations only, with smaller organisations phased into the scheme year on year.

It will eventually be the obligation of all employers to establish their own pension scheme or use the government scheme set up specifically for this purpose.

Who is eligible?

Employers are required to enrol workers – both part-time and full-time – in a workplace pension scheme providing they meet the following criteria:

• The employee works in the UK.
• The employee earns more than £10,000 a year (tax year 2016-17)
• The employee is not already in a suitable workplace pension scheme
• The employee is at least 22 years old, but under State Pension age

Opting out

Although all eligible employees must be automatically enrolled whether they want to or not, individuals can then choose to  ‘opt out’ of the scheme at any time. However, the employer must follow the same process again to automatically enrol these workers in a pension scheme three years later.

Categories and employer contribution

Employees are assigned a particular category depending on their age and level of income. This category then determines whether or not the employer has to contribute to the pension, and how much they are due to pay in. Employers must initially contribute a minimum of 1%, but this level will increase to 2% from April 2018 – March 2019 and then 3% thereafter.

The law behind pensions

The Pensions Act 2008 is the main legislation covering workplace pensions.

Summary

• By 2018, all employers must automatically enrol their eligible employees in a workplace pension scheme.
• Once automatically enrolled, employees then have the option to opt out if they wish, however they must be automatically re-enrolled once three years has passed.
• Employer contribution is set at an initial 1%, rising to 3% as of April 2019.

Need help from Peninsula?

Peninsula offers expert advice on pensions. Our teams provide 24/7 HR advice which is available 365 days a year. We take care of everything when you work with our HR experts.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.