Workplace pensions

All employers have a legal duty to automatically enrol employees earning above the personal income tax allowance (2015/16 £10,000) aged between 22 and State Pension age into a workplace pension scheme.

Minimum contributions

From October 2018 they will be obliged to contribute a minimum of 3% towards employee pensions, although there is a phasing-in period with lower percentage contributions until October 2018 as follows:

until 30 September 2017 – at least 1% from the employer as part of a total minimum of 2% of qualifying earnings

from 1 October 2017 to 30 September 2018 – at least 2% from the employer as part of a total minimum of 5% of qualifying earnings

from 1 October 2018 – at least 3% from the employer as part of a total minimum 8% of qualifying earnings.

These figures – up to 3% from employers – are significantly lower than employers’ average defined-contribution pension input of 6% and defined-benefit contribution of 9%.

Employees aged under 22 or those earning below the personal income tax allowance of £10,000 (termed ‘non-eligible job-holders’) are not obliged to join a company pension scheme, but can opt-in to one. It is anticipated that the increase in Personal Allowance, and the number of people on flexible contracts, will lead to a rise in the numbers of non- eligible employees not automatically enrolled.

Employers must decide which pension scheme to offer employees: a new trust-based scheme such as NEST or another defined benefit scheme; a defined contribution scheme; or a hybrid scheme. Whether an employer chooses to use an existing scheme or to provide a new one they must prove it provides benefits that at least equal the minimum requirements.