People & Leadership

Choosing and assessing your pension scheme

By February 2018, all UK employers must have automatically enrolled their eligible employees into a pension scheme.

Like many businesses, you may already have a pension scheme, or you may be starting from scratch. Either way, it’s important to start looking into your workplace pension ahead of your staging date to ensure you find the right scheme for your business and to allow yourself time to understand the cost implications of your ongoing contributions.

Assessing your existing pension scheme

If you already have a pension scheme for some of your employees – the directors, for example – it may qualify under the new rules. If so, you may be able to carry on using it as normal for your existing scheme members. It may also be possible to use your current scheme to automatically enrol new members, although it will need to meet some additional criteria.

What kind of pension scheme do you operate?

Defined contribution scheme

If your scheme is defined contribution (DC), a quick way to check it qualifies is to use the tool on the Pensions Regulator website. This outlines the areas you need to consider to find out if your scheme qualifies. If your scheme is good enough, you can self-certify it each year. To qualify, your existing pension scheme must:

  • Ultimately contribute at least 3% of each employee’s qualifying earnings, with the employee making up the difference to 8%
  • Have a default investment option
  • Allow non-eligible jobholders to opt in and entitled workers to join

If there is a shortfall between the employer contribution and at least 8% of the worker’s qualifying earnings, the employees concerned must each agree to pay contributions equal to or more than any shortfall.

Defined benefit scheme

Defined benefit (DB), or hybrid schemes are more complicated – we recommend you speak to your scheme provider to find out if it qualifies, and what you need to do if it doesn’t.

Whichever scheme you have, if it qualifies you also need to ask your existing provider if they are willing to expand the scheme to cover the rest of your workforce.

Choosing your pension provider

If your existing pension scheme doesn’t qualify, or if you don’t have one, you will need to choose a provider and scheme that suits your business needs. When choosing a pension scheme, it’s important that you:

  1. Assess the market: shopping around will help ensure you get the best deal for your business.
  2. Don’t delay: some pension providers require six months’ notice from new or existing customers in order to take them on.
  3. Choose a scheme that integrates with your payroll software: your provider should allow you to manage the process online. Integrating with your payroll system will minimise the ongoing administration costs and process times. Automating your systems is especially important if you have employees moving in and out of pension eligibility criteria or high seasonal fluctuations in employee numbers.
  4. Use legislatively compliant software: Sage offers a range of payroll software to cater for all types of businesses, taking the hassle out of your workplace pension duties.

Alternatively, the National Employment Savings Trust (NEST) has an obligation to accept all employers.