By: Simon B
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There are two main types of workplace pensions; money purchases schemes (also known as defined contribution schemes) and final salary schemes (also known as defined benefit schemes).
In a money purchase scheme, the money paid into the pension is invested by a pension provider chosen by you. How much the employee will receive when they retire will depend on how much has been paid in and for how long, and how well the investment has done. Some schemes will move the money into lower-risk investments as the employee nears retirement.
In a final salary scheme, the amount the employee gets depends solely on their salary and how long they have worked for you and does not depend on investments.
Over the next few years, all employers will have to automatically enrol their employees into a workplace pension. The date by which you have to do this will vary from company to company – you can check your ‘staging date’ on the Pension Regulator’s website.
If you already have a workplace pension in place, you may be able to use it for auto-enrolment purposes – you can check if your scheme qualifies here.
You must enrol all employees who:
- are aged between 22 and the State Pension age
- earn at least £10,000 a year
- work in the UK
The assets of your pension scheme must be kept separate from those of your business.
Setting up an auto-enrol workplace pension with a provider
Once you have found a provider through which to offer your workplace pension, you’ll need to find out what information they need from you to enrol your employees. The minimum they will require will be their:
- dates of birth
- National Insurance numbers
You will also need to agree with the provider how much needs to be contributed and on what dates. You could face a fine from the Pension Regulator if you don’t pay enough or don’t pay on time.
You must confirm with the pension providers the dates on which you will pay the employer’s contributions into the scheme. You are legally obliged to make these payments within a certain time limit.
Once staff have been automatically enrolled into your workplace pension, they have the option to opt back out of it. They have a month from the point at which they were enrolled to do this.
A member of staff can request to opt-out of your pension scheme if they hand you an opt-out notice, which can be procured from the scheme provider. If they do this then they will be removed from the scheme and refunded any contributions they have made to that point.
When an employee leaves your company
If they leave the company before retirement age, the employee has a number of options regarding their workplace pension. They can either leave their money in your scheme until it is ready to be paid on their retirement. Alternatively, they can transfer their pension into another workplace scheme elsewhere, or to a personal pension scheme.