Do UK companies have to provide a pension scheme?

  •  By
  •  Frankie Dewar

In the ever-changing world of finance, understanding the intricacies of workplace pension rules can be challenging. However it's important to understand the law and obligations whether you're a business owner or the responsible party within a company.

Despite 9.4 million people contributing to personal pensions monthly, many are still unaware of the basic pension requirements in the UK. A pension plays a significant role in later-life comfort and peace of mind. Therefore, learning the basic fundamental employee and employer pension requirements is essential.

So, does every company have to provide a pension? Here's what you need to know.

UK company pension scheme rules

Before we start, let's briefly summarise workplace pensions. Workplace pension schemes were adopted by the UK government primarily due to the pension savings crisis. People retiring weren't saving enough money, increasing their dependency on the State pension.

Employers in the UK are legally required to offer a workplace pension or auto-enrolment scheme for retirement under some rules (more about this below). With these, employers create the pension on their employee's behalf. Each worker can then contribute into their pension pot each month from their pre-taxed salary.

Additionally, the employer is legally required to add a minimum of 3% of the worker's salary into their chosen scheme, although there are limits.

Employers must contribute at least 3% of each employee's pre-tax salary into their company pension.

Does every company have to provide a pension scheme?

One of the primary pension requirements in the UK is that employers must offer a workplace scheme for all eligible employees by law. This pension is contributed to by:

  • the employee
  • the employer
  • the government (in the form of tax relief)

Which employees are eligible for a pension scheme?

To qualify for an auto-enrolment or work pension scheme, employees need to fit the below criteria:

  • work in the United Kingdom
  • earn a minimum of £10,000 (£520 a month or £120 a week)
  • aged between 22 and State Pension age (currently 66 in 2022, increasing to 67 by 2028)
  • classified as a worker under the government guidelines

A UK employer must enrol you into a chosen pension scheme if you fit the above rules. The only time you will be exempt is because of the following:

  • You've either given or received a notice about leaving the job
  • That you've already taken a pension that meets the enrolment rules
  • In the last 12 months, you've opted out of the employer's pension scheme
  • If you're in a limited liability partnership
  • You're the company director without a contract that employs at least a single person

If you fit any of the above, you could get disqualified from receiving a pension from the employer. For more, check out our complete guide to auto enrolment rules.

Most employees over the age of 22 and earning at least £10,00 a year must be enrolled in a pension scheme.

What are the minimum pension contributions for an employer?

As a UK pension requirement, 8% of your total wage must enter a pension scheme. An employer must contribute a minimum of 3%, so it's typically split 4% from the employee, and 3% from the company with the final 1% coming as tax relief. For an employee earning £50,000 per year that breaks down as:

  • £208.33 from the employee (incl. tax relief)
  • £125 from the employer

However, employers can pay more than 3%. If the employer contributes 8% or above, your employees won't have to contribute anything themselves (although they can still add extra on top if they wish).

Many companies prefer to offer above the minimum contribution to attract and retain talented employees. There is no upper limit on how much an employer can contribute, beyond the annual pension allowance.

How Penfold can help

Now you know a little more about what you do and don't need to provide for a company pension scheme as an employer, you'll want to pick your pension partner.

Penfold is the award-winning auto enrolment pension provider for forward-thinking businesses who want an unbeatable employee experience. We've rebuilt the workplace pension experience from scratch. Discover an engaging and efficient pension scheme that will help make your business a great place to work.

Request a free call today and our team of pension experts will explore how we can manage auto enrolment for you.

Frankie Dewar

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