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Comprehensive Guide to UK Workplace Pensions. Types, Setup, and Benefit

Introduction to UK Workplace Pensions  

A UK workplace pension is an employer-established retirement fund for employees.  Employers are obligated to provide and contribute to these schemes. Here’s what you need to know about these pensions:  


Automatic Enrolment and Contributions

As a UK employer, you’re required to offer a workplace pension and automatically enrol eligible employees. You and the employees both contribute to the pension fund. Here’s an in-depth exploration of UK workplace pensions:  


Understanding Workplace Pensions in the UK

A workplace pension, also known as a company, occupational, work-based, or works pension, is set up by employers to help employees save for their retirement. The process involves deducting a portion of the employee’s wages, which is then added to the pension fund. Employers also contribute a minimum amount to this fund.  


Eligibility and Contributions

Automatic enrolment in a pension scheme is necessary if employees meet these criteria:  

  • Age between 22 and State Pension age 
  • Earn at least £10,000 per year 
  • Usually work in the UK 


Types of Workplace Pension Schemes  

  1. Defined Contribution Pension Scheme (Money Purchase Scheme): Both the employer and employee contribute a set amount to the pension pot. This money is invested, and the final pension amount depends on contributions and investment performance. This is what’s used by most employers, the scheme that we can setup.
  2. Defined Benefit Pension Scheme (Final Salary Scheme): Employees contribute a fixed portion of their salary, while employers contribute the rest. This type offers a pension based on a formula involving years of service and final salary. 


Employer and Employee Contributions

As of June 2023, the minimum contribution for workplace pension schemes is:  

  • 3% minimum contribution for employers (on Qualifying Earnings) The legislation actually says a minimum of 3% employer and a minimum of 8% total, so employers can do more if they wish to and therefore reduce the % the employee has to contribute.
  • 5% minimum contribution for employees (on Qualifying Earnings)

You can learn more about qualifying earnings. 


Setting Up a Workplace Pension Scheme

Follow these steps to establish a UK workplace pension scheme:  

  1. Determine your staging start date, now called Duties Start Date, for auto-enrolment.
  2. Choose a pension scheme type: defined contribution or defined benefit. 
  3. Identify eligible employees and enrol them into the pension scheme. 
  4. Inform your employees about automatic enrolment. 
  5. Calculate their pension contributions and upload them into the pension scheme.
  6. 6. Complete an online declaration of compliance. 
  7. 7. If you prefer to make the whole process easier and faster, you can contact Husky and our team will do everything for you. 


Benefits of Workplace Pension Schemes  

  1. State Pension Boost: Employees can contribute to both a workplace and state pension if they earn above the National Insurance Contribution threshold. 
  2. Tax Relief: Pension contributions are always tax free, so even if they are not deducted before income tax the employee can claim the tax back.
  3. Employer Matching: Employers do not have to match but they need to contribute the minimum levels (e.g. 3% on QE).
  4. Retirement Security: Workplace pensions, when combined with tax relief and investments, ensure a secure retirement. 


FAQs on Workplace Pension Schemes  

  1. Difference Between Auto Enrolment and Voluntary Enrolment: Auto-enrolment is mandatory for eligible employees, while voluntary enrolment is optional. 
  2. Claiming Tax Relief: Employees can claim through their pension provider via relief at source or net pay arrangements. You can learn more about how tax relied works on this article.


Managing UK Workplace Pensions with Husky  

Husky is a digital pension app that simplifies the management of UK workplace pensions. It helps companies set up and manage pensions with ease, ensuring compliance and benefits for both employers and employees. 

Get more now. Have more later.

We setup and manage your pensions, payroll, and salary exchange—all in one place, ensuring compliance every step of the way.