Talk Money Week: Spotlight on workplace pensions

This week is Talk Money Week in the UK. Its purpose? To get people talking about financial wellbeing and money management. This is particularly important in the context of the COVID-19 pandemic, which has impacted the financial security and wellbeing of businesses and individuals alike. According to the Money and Pensions Service, approximately one third of older workers have admitted to being financially impacted by the pandemic, whilst 77% of employees say they have worried about money while at work. This can affect their stress levels, productivity and wellbeing.

As part of its Talk Money Week campaign, the Money and Pensions Service recommends that businesses support the financial wellbeing of their staff by talking to them about what financial benefits they provide and signposting them to its free online resources. 

Looking to join the conversation? As an employer, you may provide various different benefits to your staff, from childcare vouchers and season ticket loans, to enhanced family leave pay and workplace pensions, and it’s important for you to understand what your minimum legal obligations are. To get you started, in this blog we’re shining a spotlight on workplace pensions, providing an overview of what your legal duties are as an employer and what to think about when choosing a pension scheme for your staff. 

Let’s jump in. 

Providing a workplace pension scheme for your staff

Most employers are required by law to have a workplace pension scheme in place for their staff and to contribute towards it. The majority of your staff will be entitled to be enrolled in your pension scheme and if you fail to enrol them, you could be fined by the Pensions Regulator or be subject to a short-notice inspection. 

What are your legal obligations?

You have various legal obligations when it comes to both enrolling staff into a pension scheme and its ongoing administration. These begin as soon as you employ your first member of staff and include:

1. Set up a workplace pension scheme (see Choosing a pension scheme for your staff below)

2. Enrol your staff into your scheme; some staff must be automatically enrolled in your pension scheme (unless they opt out), whereas others only need to be enrolled if they ask; make sure you know which rules apply to which of your staff (see Which staff must be enrolled in my workplace pension scheme below)

3. Write to your staff within six weeks of them becoming eligible to be enrolled in your pension scheme, and explain what that means for them. Our template letters will help you to comply – the letter you choose will depend on whether your staff are entitled to be automatically enrolled or not (see Which staff must be enrolled in my workplace pension scheme below): 

• Letter to eligible staff about automatic enrolment in a workplace pension
• Letter notifying staff member of right to join a pension scheme

4. Within six weeks of the date on which your staff must be enrolled in your pension scheme, provide your pension scheme provider with core information about them (including their name, gender, date of birth, salary etc)

5. As part of their core terms and conditions of employment, provide your employees and casual workers with written details about the terms of your pension scheme within two months of them starting work for you

6. Complete the Pension Regulator’s declaration of compliance with your auto-enrolment obligations within five months of your first member of staff starting work for you (and within five months after your automatic re-enrolment dates, which are approximately every three years; see (8) below)

7. You are legally required to pay a minimum amount of money into your staff members’ pensions (except those for “entitled workers”; see Which staff must be enrolled in my workplace pension scheme below). Make sure that you are ready to process your pension contributions on time; you can be fined by the Pensions Regulator if you make them late. Your pension provider can advise you when your first payments must be made 

8. Keep up to date with your ongoing duties. These include assessing the eligibility of new staff for your pension scheme, setting a date for re-enrolment every three years for staff who have left your scheme, notifying your pensions provider of any changes and keeping proper records. See Ongoing administration of a staff pension scheme for a full rundown of what your ongoing duties are and how to comply 

Which staff must be enrolled in my workplace pension scheme?

The workplace pension rules apply to most staff based in the UK if they are employees or casual workers (rather than self-employed freelancers). Your employees and casual workers will fall into one of three groups, which will determine which rules apply to them:

• Staff aged between 22 and the state pension age who earn more than £10,000 per year
  
  These are “eligible jobholders” and they must usually be automatically enrolled in your pension scheme unless they opt out

• Staff aged over 16 and under 75 who earn over £6,240 and less than £10,000 per year, those aged 16 to 21 who earn more than £10,000 per year, or those between state pension age and under 75 who earn more than £10,000 per year
  
  These are “non-eligible jobholders” and they do not need to be automatically enrolled in your pension scheme, but you must write to them giving them the opportunity to be enrolled. You must enrol them in your pension scheme if they request this in writing.

• Staff aged over 16 and under 75 who earn £6,240 or less per year 

  These are “entitled workers” and they have no automatic right to join your pension scheme, but you must write to them telling them about their right to opt in if they wish. Unlike for the other categories of staff, the pension scheme you choose does not have to be one that requires you to make a contribution.

Note that you can delay automatically enrolling qualifying staff in your pension scheme by up to three months. If you want to do this, you’ll need to notify your staff member in writing (eg by email) setting out certain information about the deferral. For further guidance and a template letter you can use to defer enrolment, see our Q&A. 

Choosing a pension scheme for your staff

If you’re setting up a workplace pension scheme for the first time, you’ll need to find a suitable provider for your business and choose a pension scheme that’s suitable for automatic enrolment. A pension scheme provider can be invaluable in guiding you through the process if you’re unsure what to do in your particular circumstances, and they can provide administrative support (eg by dealing with staff who opt out of your pension scheme).  

Relevant considerations for your business will likely include:

1. the cost of the scheme (including ongoing administrative fees);
2. whether there is a minimum number of staff that you must enrol;
3. how pensions contributions will be calculated;
4. how much administrative support you will receive; 
5. whether the scheme is compatible with your payroll services; and
6. the scheme’s tax arrangements. 

The Pensions Regulator has a list of providers who deal with auto-enrolment pensions for small businesses, or your accountant or financial adviser may be able to assist you with choosing an appropriate scheme. Alternatively, you can use a free pensions comparison website to help you choose. 

Our Q&A contains further guidance about what to look for when you’re choosing a scheme for your staff. 

Frankie Mundy

Before joining Sparqa Legal as a Senior Legal Editor in 2017, Frankie spent five years training and practising as a corporate disputes and investigations lawyer at leading international law firm Hogan Lovells. As legal insights lead, Frankie regularly contributes to Sparqa Legal’s blog, writing content across employment law, data protection, disputes and more.