Complying with workplace pension rules can sometimes feel like an onerous task, but at Paul Beare Ltd we are well aware of the typical stumbling blocks that businesses can sometimes run up against.  

One of the main ones surrounds whether or not you are obliged to match your employees’ contributions to their pension. Put simply, you do have an obligation to meet your minimum contributions.  

The basic rules are as follows 

  • You need to deduct contributions from your staff’s salaries and pay these and your contributions over to the scheme on time and accurately. 
  • After you have set up your scheme if you’re unsure what to pay and when you should your pension scheme provider or trustees. 
  • If you fail to contribute to your staff pension scheme correctly or on time you risk being fined by the regulator. 
  • There are specific records and payment information you must keep. 

Your minimum employer contribution 

Pension contributions are usually expressed as a fixed sum or a percentage of earnings. If they’re expressed as a percentage you will need to confirm salaries with your pension provider and/or the trustees regularly as necessary from time to time. The typical minimum contribution for UK employers is 3% of earnings, but it does depend on the kind of pension scheme you’re running.  

In some cases, you have the option to pay in more than the legal minimum. In these schemes, employees pay in less as long as you put in enough to meet the total minimum contribution. 

You also need to decide what elements of staff pay are used to calculate pension contributions, subject to any overriding legislative requirements, such as in relation to automatic enrolment. You may decide that only basic pay is pensionable but not bonus or overtime payments. Let your pension scheme know what you decide and they can make the necessary changes for you.  

An example of pension contribution matching 

Jane earns £20,000 a year and is a member of her employer’s workplace pension scheme. She contributes 3% of her salary to the scheme and her employer contributes 5%. Jane’s employer has agreed to match employee contributions between 3% and 8% of her salary. 

Jane is considering increasing her contributions to benefit from her employer agreeing to match her additional contributions. 

Currently, Jane is paying 3% of her salary of £20,000, or £600, into the scheme each year, while her employer pays 5%, or £1,000, a year. So, the total contribution paid into the scheme is £1,600 a year (Jane’s contributions are paid from her salary before tax is deducted). 

If Jane increases her contributions to 8% of her salary, she will then be paying £1,600 a year into her pension scheme. Her employer has agreed to match Jane’s additional 5% contribution, so will pay an additional £1,000 a year. This increases the total contribution to £3,600 a year. 

You can find out more by looking at our guide to auto-enrolment. If you’re in need of advice or support in this or any other area, we’re right here for all your needs. You can contact us for help from tax and payroll to accounting and banking.