The Pensions Regulator (TPR) announced last week that it is carrying out spot check inspections across the UK on employers suspected of being non-compliant with their workplace pensions duties. In its press release, TPR commented that this marks a return to its larger scale, in-person inspections, which had been paused as a result of COVID-19 restrictions. During the pandemic, only urgent, ad hoc inspections have taken place.
According to TPR, in most cases, employers who have been the subject of an inspection have failed to make the correct contributions to their staff members’ workplace pensions. With this in mind, we’ve provided a refresher below on your legal obligations when it comes to workplace pension contributions.
Minimum employer pension contributions
As an employer, you are legally required to pay a minimum amount of money into your staff members’ workplace pensions. Usually these contributions are based on a staff member’s qualifying earnings (their gross earnings between £6,240 and £50,270). This means that no contributions need to be made in respect of gross earnings outside of that range. Qualifying earnings for these purposes include salary, wages, commission, bonuses, overtime, statutory sick pay and statutory family leave pay (eg maternity, paternity etc).
For pension payments based on your staff members’ qualifying earnings, the current total minimum contribution to an employee’s pension scheme is 8% of their qualifying earnings. As an employer, you must contribute at least 3% of this; the difference will be contributed by your staff member. The Pensions Regulator calculator helps work out what minimum contributions you and your staff member must make.
Note that some pension providers offer pensions calculated on the basic salary of staff members rather than qualifying earnings. In these cases, the minimum contribution percentages are slightly different, but the final figures will be similar.
Note that each pension scheme may have its own contribution requirements, and this blog is simply a guide to the legal minimums.
For guidance about which of your staff are eligible to be enrolled into a workplace pension scheme, see our Q&A on Enrolling staff into a pension scheme.
Offering pension benefits beyond the legal minimum
It is of course open to your business to offer a more generous pension scheme than legally required. There can be several benefits to this:
1. Attracting and retaining talent
Offering to contribute more than the legal minimum to your staff members’ workplace pensions can be an excellent way to attract new talent to your business, particularly for more senior or highly paid positions. It can also boost morale amongst your workforce, helping to motivate your current staff to stay with your business in the longer term.
2. Tax benefits
Offering a workplace pension scheme comes with a tax break for both you and your staff. For higher paid staff, it may be worth considering a salary sacrifice pension arrangement to maximise tax efficiency. For further guidance, see our Q&A on Paying for a pension scheme.
Bear in mind that there are also downsides to offering more generous pension schemes. Obviously they will usually involve an increased expense for you, and there may be additional administrative burdens on your time, as well as higher annual fees payable to the pension provider. Note also that there is a cap on contributions beyond which the usual tax relief is not applied.
It is advisable to get professional advice specific to your circumstances before significantly changing your pension arrangements. For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service.
To find out more about your pension obligations, including which of your staff must be automatically enrolled in your workplace pension scheme, see our Q&A on Enrolling staff in a pension scheme.
Before joining Sparqa Legal as a Senior Legal Editor in 2017, Frankie spent five years training and practising as a corporate disputes and investigations lawyer at leading international law firm Hogan Lovells. As legal insights lead, Frankie regularly contributes to Sparqa Legal’s blog, writing content across employment law, data protection, disputes and more.