Understanding the Mandatory UK Pension Scheme

Bret Silverberg
by Bret Silverberg

UK PensionRunning to more than 400 pages, the UK government offers extensive guidance on the new mandatory pension requirements, from who is eligible and how to determine that eligibility, to communicating the new requirements to worker groups. In short, almost every person classified as an “eligible jobholder”- someone with or without an employment contract who is performing work on behalf of an organization – is generally eligible.

What you need to know:

A phased roll-out of workplace pensions began in 2012 when only the largest companies were required to participate. Now, companies with 50 or more employees are required to offer pension plans in the UK, and by the end of 2017, all UK employers, regardless of size, will be required to provide a workplace pension plan to their employees. Even a food cart vendor with one employee must put a pension plan in place. The workplace plans are supplemental to the National Insurance pensions that are provided by the government.

The legislation requires employers to automatically enroll their employees in a pension plan, with the option of opting out within three months.  This enrollment changes based on jobholder earnings, age and jobholder category. Each of these can trigger eligibility and must be monitored to meet the automatic enrollment requirement. Every three years, employees must be given the option to enroll (or opt out) and employers must keep close track of opt in and opt out dates. Even if an employee elects to opt out, the employer still has an obligation to that employee. Documenting the opt out, monitoring eligibility and meeting the document and notice requirements are mandatory, should the employee decide to opt in sometime in the future.

Currently, employers are required to contribute 1% of each employee’s salary to him or her through the workforce pension plan and the contribution will increase to 2% in April 2017 and then 3% in April 2018. From April 6th, 2019, all employers will be required to contribute 4%, at which point the plan will be fully implemented. Participating employees contribute 4% of their salary and the government contributes another 1%. Employers must deduct contributions from employee pay by the 22nd of each month or be subject to fines. Incorrect payments are also subject to penalties. Employees who opt out are not entitled to contributions from employers or the government.

For some employees, depending on income level, the workplace pension scheme offers benefits in addition to the pension, including:

  • tax credits or an increase in the amount of tax credits the employee receives
  • an income-related benefit or an increase in the amount of benefit the employee receives
  • reduction in the amount of student loan repayments the employee needs to make

Though the new legislation will benefit eligible jobholders, maintaining compliance and making on-time, accurate contributions will be a significant challenge for those without the resources.

Feeling a bit overwhelmed? You aren’t alone. Many of our clients have told us that researching, contracting with and managing a pension provider, plus staying abreast of changes to the pension law, adds tremendous complications and overhead to their state-side HR teams’ daily operations.

Not to fear, if you are considering a hire in the UK, there is light at the end of the tunnel.  As a part of our UK PEO offering, we have a compliant workforce pension plan already set up. By using Globalization Partners as your UK Global PEO or Employer of Record, you can shift the burden of pension law compliance from your shoulders to ours, making this a seamless part of your employee benefits package while reducing the workload on your staff.  Less stress, more reward. UK pension compliance, streamlined.

At Globalization Partners, we work with clients large and small to get to market quickly and legally without the need for entity setup. We can have employees on a compliant payroll and productive in a matter of days. If the market opportunity isn’t there, the risks typically associated with termination are minimized as our advisory team handles the termination according to local labor law. When the time comes to transfer employees to a newly created entity, we can help there as well.

Contact us today to get started. 

Bret Silverberg

Bret Silverberg

Director, Content Strategy, Globalization Partners

Bret Silverberg joined Globalization Partners in April 2017. He has 10 years experience working in content marketing and publishing.