In the past, many employees may have missed out on valuable pension benefits, either because they didn’t join their company’s pension scheme or their employer didn’t offer them a pension.
This was changed by the introduction of auto enrolment, which makes it compulsory for employers to enrol eligible employees into a pension scheme and to pay a minimum contribution into it. Auto enrolment was phased in from 2012 and all eligible employees should have been enrolled by 1 February 2018.
Employees — how much do I and my employer have to pay?
The government has set minimum levels of contributions that must be paid to the workplace pension scheme by you and/or your employer. Your employer must pay some of the minimum total contribution. If your employer doesn’t pay all of it, you will need to make up some of the difference — your employer will tell you how much you need to pay.
Through tax relief on your contributions, the government will effectively also be paying into your pension pot. Even if you don’t pay Income Tax, you’ll still get tax relief if your pension scheme uses tax relief at source.
The minimum total contribution is usually based on your ‘qualifying earnings’ — your earnings from employment, before Income Tax and National Insurance are deducted, that fall between a lower and upper earnings limit set by the government.
- Your employer pays: 3.0% of your qualifying earnings
- You pay: 4.0% of your qualifying earnings
- Government tax relief adds: 1.0% of your qualifying earnings
- Total contribution: 8.0% of your qualifying earnings
Employer responsibilities
Under the Pensions Act 2008, if you employ at least one person you have a legal duty to enrol certain staff into a workplace pension scheme and contribute towards it. What you need to do depends on whether you have staff who must be put into a scheme.
The Pensions Regulator expects employers to assess their workforce, choose a qualifying scheme, communicate with staff, manage opt-ins and opt-outs, keep records and complete a declaration of compliance — then re-enrol eligible staff roughly every three years.
We help employers select and implement a suitable scheme, get the assessment and communications right, and keep on top of ongoing duties without it taking over the working week.
The value of pension investments and the income from them can fall as well as rise and you may not get back the amount originally invested.