Employer Pension Rules: Do I have to offer a workplace pension?

Offering a workplace pension is a legal obligation for most employers. In this article, we explain what workplace pensions are, who needs to be enrolled, and what your duties are as an employer, including key steps, contribution levels, and upcoming regulatory developments.

What are workplace pensions?

Workplace pensions are pension plans managed by the employer. Contributions are made both by the employee (taken directly from their wages) and by the employer. They are distinct from self-invested personal pensions (SIPP), which are personal and to which the employer does not contribute.

Do I have to offer a workplace pension to all my employees?

As an employer, you have to offer a workplace pension scheme by law. You have to automatically enrol any employee who is eligible as an active member of an automatic enrolment scheme with effect from the date they become eligible. This is called automatic enrolment, mandated by the Pensions Act 2008.

‍Eligible employees: An eligible employee must:

• be aged between 22 and State Pension age;

• earn at least £10,000 a year;

• work in the UK; and

• not already be in a workplace pension scheme.

‍Non-eligible employees: If an employee who is not eligible for automatic enrolment wants to join your workplace pension scheme, you cannot refuse them if they give you an opt-in notice. However, you will not be required to contribute to their pension scheme if they earn less than either £520 a month, £120 a week or £480 over 4 weeks.

How do I get ready for automatic enrolment?

You should be ready to comply with your legal duties as soon as a new member of staff begins employment. The steps you should take are as follows:

1. Assess the employee against the eligibility criteria and work out if they need to be enrolled in a pension scheme.

2. Choose a pension scheme suitable for automatic enrolment. If this is your first time putting a pension scheme in place to fulfil your enrolment duties, you will need to establish this automatic enrolment scheme with effect from the date the duties arose. When choosing a pension scheme, you will need to make sure it is tax-registered in the UK and meets certain requirements. You can find more details about these requirements on the Pensions Regulator website: https://www.thepensionsregulator.gov.uk/en/document-library/automatic-enrolment-detailed-guidance/4-pension-schemes-under-the-employer-duties

3. Enrol the employee into the pension scheme and write them a letter no later than six weeks after they meet the eligibility criteria (the duties start date which is usually the date their employment started). The letter should specify:

• the date you have added them into your pension scheme;

• the type of pension scheme and who runs it;

• how much you will contribute and how much they will have to pay; and

• how they can leave the scheme or opt out should they want to.

‍4. Declare compliance online on the Pensions Regulator’s declaration of compliance form stating how you have met your legal duties, even if you did not put any employee into a pension. You must do this no later than five months after the duties start date.

5. Be prepared for re-enrolment. You must let employees rejoin the scheme once a year if they have opted out and re-enrol them automatically every 3 years if they have opted out and are still eligible for automatic enrolment. They will have the right to opt out again within the statutory one-month opt-out window. At the same time, you will need to make a new declaration of compliance to the Pensions Regulator.

Can I delay the enrolment date?

You can delay the date you must enrol an employee into a pension scheme by up to 3 months, but you must tell your employee about the delay in writing and let your employee join in the meantime, if they ask to. You can also pay the first 3 months of contributions as a lump sum in the 4th month thereafter.

Are there any restrictions on what I can do that I should be aware of?

You cannot encourage or force an employee to opt out of the scheme, unfairly dismiss or discriminate against the employee for staying in a workplace pension scheme, nor imply someone is more likely to get a job if they choose to opt out of the pension scheme. Finally, you cannot close a workplace pension scheme without automatically enrolling all members into another one.

What if an employee does not want to be enrolled in the workplace pension?

If an employee does not want to be enrolled in the workplace pension scheme, they can leave it at any time after they have been enrolled as it is compulsory for eligible employees to be put into the workplace pension first. In this way, you will not be in breach of your legal duties. They will then have one month to opt out and receive a full refund of their contributions. They can also leave at a later point, but the refund of their contributions will then depend on the scheme rules. You must let your employee leave the pension scheme if they ask to opt out.

How much do I need to contribute?

You and the employee must pay at the very least the minimum contribution to the pension scheme, either as a fixed amount or based on a percentage of earnings, provided that it meets the total minimum contribution determined by the scheme’s rules. This is 8% for automatic enrolment, with employer contributions making up at least 3% and employees’ up to 5% (including any tax relief).

What type of workplace pension can I offer?

You can offer your own qualifying occupational or personal pension scheme, provided it meets certain statutory requirements mentioned previously. Alternatively, you can enrol your employees in NEST, a central scheme set up by the Government.

The types of scheme that you can provide are:

• Defined benefit (DB) schemes also called final salary schemes;

• Defined contribution (DC) schemes also called money purchase schemes;

• Hybrid schemes that combine elements of DB and DC schemes;

• Master trusts;

• Shared-risk or collective benefit schemes.

Occupational pension schemes can provide an employee with DB, DC or hybrid benefits.

Personal pensions schemes, which are set up by a contract between an insurance company and an employee, can only provide DC benefits.

When choosing between a DB or a DC scheme, there are a number of factors that should be taken into consideration. For instance, a DB scheme is regarded as providing more benefits for employees but is more costly and therefore risky for the employer to run.

Are any changes expected in the near future?

The Pension Schemes Bill 2025 is expected to be published before the summer. Whilst it is not likely to change the obligation to offer a workplace pension to your employees, it is expected to contain a range of policies that will affect both DB and DC pensions.

Watch this space!

How to get in contact

Our specialist employment solicitors are available to guide you through this complex area and advise you swiftly and decisively when problems arise.

For further information please feel free to contact Rachel Lester, Head of Employment,

on +44 (0)7394 802375 and at Rachel.Lester@ilaw.co.uk.

‍