Do I need to provide a workplace pension scheme?

Do I need to provide a workplace pension scheme?

Since 2012, in a bid to address the issue of inadequate retirement savings within the UK, the government introduced the workplace pensions legislation. This means, in most instances, that it is mandatory to provide a workplace pension. This is sometimes also referred to as an auto-enrolment pension scheme.

As an employer, you have a legal duty to offer a workplace pension scheme. But there are benefits to providing pension scheme membership to your employers, such as improved employee retention and financial security for employees to grow their pension pots and potential tax savings for you to enjoy.

You can benefit from tax relief on your pensions and save on taxes by implementing a salary sacrifice scheme within your workplace. It’s a win-win situation.

In this blog post, we will look at what a workplace pension scheme is, the types of pension schemes available, your legal duties, and finally, the benefits of offering an employer’s pension scheme.

What is a workplace pension scheme?

A workplace pension scheme is a pension scheme that is offered by an employer to its employees.

The prime purpose of the scheme is to help employees build up their pension pot through both employer’s and employee pension contributions to help employees during retirement.

It is a legal requirement for an employer to offer a workplace pension, automatically enrol eligible employees and report to the pensions regulator that they have adhered to their automatic enrolment duties.

What types of pension schemes are there?

It is worth noting that under automatic enrolment duties, an employer must provide a registered pension scheme.

Types of registered pension schemes can include:

  1. Defined contribution pension scheme– This is where both an employee and employer pays into a pension scheme. The final pension scheme amount on retirement is based on the value of the contributions paid into the scheme and the performance of the investment choices made by the pension scheme provider.
  2. Defined benefit pension scheme– These can also be known as a final salary scheme. The scheme still receives an employee and employer’s contribution, but upon retirement, the pension benefits are fixed based on the employee’s earnings. These schemes are less common now, as it is the employer’s responsibility to cover any shortfall between the funds within the pension scheme and the benefits paid to employees.
  3. Stakeholder pension– A stakeholder pension is a defined contribution scheme that offers an employer a low-cost and flexible workplace pension scheme.
  4. Group Personal pension– This is a type of defined benefit scheme. Whilst each employee has a personal pension plan, the employer will operate a group arrangement with a pension provider.
  5. Master Trusts– These are pension schemes that encompass multiple employers within a scheme. The main benefit of these lies in their ability to offer cost-effective solutions to employers due to the economies of scale they can achieve.

There are other pension schemes, such as a SIPP (Self-Invested Pension Plan) and a SASS (Self Administrated Scheme), but these are more suitable for self-employed or business owners as they are not occupational pensions.

Who is eligible for an employee pension scheme?

There are various criteria that an employee needs to meet before they can be enrolled into a workplace pension scheme. In general, employees between 22 and state pension age that earn over the minimum earnings threshold (currently £10,000) are eligible for automatic enrolment and must be automatically enrolled into a scheme. These are referred to as ‘Eligible Employees’ or ‘Job Holders’.

Employers must still offer a workplace pension to non-eligible workers that are between 16 and 75. They are not automatically enrolled on the employer’s pension scheme but can choose to opt in.

Employers are only obliged to pay contributions for these employees where:

  1. They are between 22 and state pension age and earn between £6,240 and £10,000
  2. Or between 16 and 21 or between state pension age and 75 and earn above £6,240

If you are looking into pension schemes, why not check out our blog, which is all about salary sacrifices and how your employees may benefit from them?

Are all businesses obliged to offer workplace pensions?

Most businesses will have to offer a workplace pension scheme and make at least the minimum contribution.

The main exceptions to this are where a business has no employees or only employs directors that do not have an employment contract.

Do you still have to offer workplace pensions if you have no employees?

The business does not have to offer a workplace pension if it has no employees. However, if the business is running a payroll only for directors, it is part of their obligation to notify the pensions regulator that they do not have to offer a workplace pension scheme.

What happens to my employee’s pension if they choose to leave?

This depends on the type of workplace pension scheme you have in place.

Where it is a defined benefit scheme, the value of their pension fund remains with the employee. At this point, they can keep the funds within the scheme, transfer them to one of their other personal pensions, or take a lump sum if they meet the scheme criteria.

Defined benefit schemes are more complex, and options depend on the scheme rules as to whether they can transfer their pension value or take lower benefits instead.

The best course of action is for a former employee to talk to a financial adviser who can offer an independent view of what to do with their pension.

What are the benefits of a workplace pension?

The main benefits of a workplace pension include:

  1. Attracting and retaining employees– Offering a good workplace pension can be a benefit that makes your business stand out from other employers. Not only can it be more tax advantageous for both the employee and employer, but you are demonstrating that you are investing in their long-term future.
  2. Tax benefits– Remunerating employees by offering increased pension contributions, or a salary sacrifice scheme, can aid both employee and employer, as there are no national insurance contributions payable on pension contributions.
  3. Increased productivity– If employees feel supported in their long-term future or are offered a flexible package, it leads to a more motivated workforce.

What are the disadvantages of a workplace pension?

For small employers particularly, the main disadvantages are the cost and administrative burden of operating the scheme. Dealing with the pensions regulator is not straightforward and can be quite cumbersome.

Speak to our accountants at Spotlight Accounting about your payroll

How much of their salary an employee sacrifices towards their pension depends on the contractual arrangement between the employee and the employer. The payment deduction happens during payroll, and it is imperative that it is calculated correctly.

At Spotlight Accounting, we cater to a diverse range of clients, including big and small businesses. We offer comprehensive payroll services weekly and monthly, accommodating companies, partnerships, charities and sole traders with fixed salaries and hourly wages.

Part of our payroll service includes dealing with workplace pension requirements and the pensions regulator, so you do not have to waste valuable time trying to get your head around all the pensions regulator requirements.

Frequently asked questions about workplace pensions

To learn more about managing workplace pensions with their payroll, check out our FAQs below or contact us today:

Is it compulsory for employees to pay into a workplace pension?

It is not compulsory for employees to pay into a workplace pension.

As an employer, you must automatically enrol eligible workers into the scheme, but as an employee, you can opt-out.

However, if they opt out, they do have to be re-enrolled every three years. An employer must not get involved with advising an employee whether to opt-out or not, as part of the pension regulators’ requirements.

Is a workplace pension tax-free?

Both employee and employer contributions are tax-free. How tax relief is given depends on the scheme.

Is State Pension the same as the workplace pension?

No, the new state pension is entirely separate from a workplace pension. You can find out more about the new state pension here.


Most employers do have an obligation to provide a workplace pension scheme; however, doing so can provide significant benefits to their employees. The legislation surrounding workplace pensions may be complex, but using the expertise of a chartered accountant can assist in supporting your business.

Want to learn more about pensions? Check out our other blogs here:

Carrie Stokes Chartered Accountant

Carrie Stokes Chartered Accountant

I work with directors of limited companies in Shropshire, Staffordshire and the West Midlands giving them a clear and up to date financial picture of their business that they understand. Looking at the numbers, what they mean and how they can be improved to grow their business.

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