Create an Auto-Enrolment Pension in Your Company

Bringing on your first staff member is a thrill. It demonstrates that your business is growing in a very tangible way.

But owning a business and hiring staff means facing a variety of challenges and unknowns, especially at the beginning. One of the most important steps of hiring your first employee is setting up and managing a workplace pension scheme.

You probably have some questions. By the end of this article, you’ll have a more solid understanding of auto-enrolment pension schemes. You’ll know why it’s important to have a scheme and what steps you’ll need to take to set one up.

What is a workplace pension scheme, and why do I need one?

A workplace pension scheme is a retirement savings program that helps employees save for retirement through contributions deducted directly from their wages. The pension is supplemented by required contributions made by their employer.

According to Gov.UK, employers must equip their staff with a workplace pension scheme on the ‘duties start date,’ or the first day of work, of the first staff member. You are considered an employer if you deduct tax and National Insurance contributions from employee wages.

If your employee is between the age of 22 and the State Pension age, earns more than £10,000 a year, and usually works within the UK, you must make an employer’s contribution for that staff member.

What does the ‘auto-enrolment’ part of auto-enrolment pension scheme mean?

The ‘auto-enrolment’ part means that employees are automatically enrolled in their employers’ workplace pension schemes from their first day of employment unless they choose to opt out.

Setting up an auto-enrolment pension scheme can seem like a waste if all your employees opt out. You are, however, still required to have a pension scheme available, even if you know that all your employees will be opting out. 

From the moment your employees start work, they are automatically in. They have the option to opt out. Not offering a pension plan at all is not an option. In fact, you may incur lofty fees and penalties if you have not set up a pension scheme after three months of employment.

You can choose between hundreds of different schemes. At Trinity, we use Nest or People’s Pension. These schemes are free to set up yourself. You can also ask your accountant for assistance – they’ll know what to do. 

How much is it going to cost, and who pays what?

The employer pays a minimum of 3% of the employees qualifying earnings, and the employee pays a minimum of 5% of their qualifying earnings. 

To find out what counts as ‘qualifying earnings,’ check the pension scheme you’re using.

You as the employer must deduct contributions from your staff’s pay each month.

How do I set up a pension scheme, and how do I manage it?

To set up a pension scheme, visit The Pension Regulator’s tool for employers. This will help you find out exactly what you need to do, and when.

After you choose a pension scheme, you will need to write to each of your staff members and explain the ways the auto-enrolment pension scheme applies to them.

Finally, you will need to submit a declaration of compliance within five months of your first employee’s duties start date.

For information about the long-term process of managing your auto-enrolment pension scheme, check out the resource page at Gov.UK.

Forgetting this crucial step of the hiring process can be incredibly costly, so we hope you found this article informative. If you need additional help with employment law or if you have any further questions, get in touch with the Trinity team.

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