Workplace Pensions: Your Responsibilities as a Small Business Owner

Employers are required by law to provide a workplace pension scheme for employees, no matter what size your company is.

Even as a small business owner, you have the same obligations as large corporations when it comes to workplace pension rules introduced in the UK in 2012.

The scheme was launched by the government as a way to help people save for retirement. Sometimes called an occupational pension or company pension, it is arranged by the employer.

What is a workplace pension?

A workplace pension is an important benefit for your employees, as it helps them to earn a larger pension pot for when they retire.

As an employer, you have various options for implementing it, from the NEST scheme run by the government to using your own pension provider.

Companies with employees aged from 22 to State Pension age who earn a minimum of £10,000 per year, are paid via PAYE and who usually work in the UK must offer a workplace pension.

Any employees who qualify must be included in the company’s pension scheme by default. They can opt out, but it should be their own choice.

If an employee has a valid reason to opt out, such as if they’ve saved almost their whole lifetime allowance already, they may choose to do so, rather than be faced with a big tax bill.

However, as a company owner, you need to encourage your workforce to be enrolled in the workplace pension scheme.

If someone has opted out, they are permitted by law to join at any time in the future. Every three years, the employer must re-enrol employees and encourage them to take up the scheme if they haven’t done so already.

How do pension contributions work?

Employer pension contributions are an important part of the scheme. The company, even if it’s a small business, must pay into the pension scheme. The minimum contribution levels at present are 5% by the employee and 3% by the company.

If you’re wondering how to provide a workplace pension, you have several options: the government runs its NEST scheme that you can sign up to, or you can join another pension scheme aimed at multiple employers. Alternatively, you can set up a bespoke pension scheme yourself, but it’s important to weigh up the pros and cons to determine which is best for your company and your workforce.

The government-backed NEST scheme is quick to set up and at present doesn’t charge the employer a fee. It also communicates in many languages to offer diversity and has good customer support. However, the investment choices are somewhat limited and there are few options for retirement, so many employees choose to transfer to a different pension scheme when they actually retire.

The array of multi-employer private pension schemes is diverse on first inspection, but on closer examination, they are often similar in terms of turnover and size.

When considering one of these private pension providers, the key is how much they charge the employer for using their services.

Bespoke pension schemes are an option if you don’t want to use NEST and can’t decide on a multi-employer pension provider that satisfies all your needs.

Usually, bespoke schemes are used by the big companies who have a lot of staff with specific needs. They can be unnecessarily complex for SMEs.

A financial adviser can help you to weigh up the alternatives to find the right one.

Workplace pensions for small businesses can be a complex field for owners and can also be time-consuming, but it’s crucial to get it right. Consequently, a lot of SMEs use the services of a small business accountant to deal with payroll and workplace pension administration.