Law guide: Employment

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Pensions and pension contributions

Pensions and pension contributions


Stakeholder pensions

Employers with 5 or more employees are not required to choose and provide access to a stakeholder pension plan. However, where an employee is already a member of a stakeholder pension plan (having had one regular contribution to the plan deducted from their salary before 1 October 2012), the employer is still under a duty to deduct and pay over the employee's pension contributions.

Stakeholder schemes must be registered with HM Revenue & Customs and with the Pensions Regulator.

Auto-enrolment and NEST (National Employment Savings Trust)

Some employers must automatically enrol eligible jobholders into a pension scheme. Employers can use their existing scheme, a new scheme or NEST (which has been set up by the Government).

Auto-enrolment is taking place in stages. The staging dates depend on an employer's size (based on PAYE as at 1 April 2012). Staging will continue until 2018, ultimately covering all employers.

Mandatory contributions, which will eventually reach 3% for employers, are also being phased in over the same period.

Employees may opt-out of the auto-enrolment scheme.

For more information, see the auto-enrolment guide (PDF) from the Pensions Regulator, who also offer a number of other useful resources.

Occupational pensions schemes

Also known as works pension, company pension, or superannuation, occupational pension schemes are set up by employers for their employees in contrast to stakeholder pensions where employees purchase investment into a stakeholder scheme. The occupational pension scheme is managed by a board of trustees who are responsible for ensuring payment of benefits. There are two types of occupational pension schemes:

  • Contributory: both the employer and the employee contribute to the pension
  • Non contributory: the employer makes all the payments

In either case the employer has to pay for a substantial part of the administration costs of the pension scheme, by law.

This is a complicated area and tax relief may be available to employers who contribute to an occupational pension scheme that is approved by HM Revenue and Customs.