Workplace Pension Scheme

Coming into affect in April 2016, the government are introducing a new law that shall require employers to provide a pension scheme to their employees. The scheme requires the government, the employer and the employee to pay into a pension pot for the employee.

Who qualifies for the scheme?

The business must automatically enrol their employees into the scheme if the employee meets the following requirements:

• Aged between 22 years old and State Pension age
• Earns over £10,000 per year
• Works in the United Kingdom

How much does each party need to contribute?

The employee must pay a minimum of 0.8% of their qualifying wages and earnings into the pension, which is set to rise to a minimum of 4% by 2018. For the employer for the first year the business must pay 1% of the employee's qualifying wages and earnings, which is set to rise to a minimum of 3% by 2018. The government shall be paying an initial 0.2% of the employee's qualifying earnings, which shall rise up to 1% in 2018.

Both the employee or employer can pay more into the pension scheme if they wish. Although those aged below 22 years of age are not automatically enrolled as part of the scheme they can still pay in if they so choose. For those who are under 22 years of age who do decide to pay in who pay Income Tax, the government shall automatically add tax relief to the employee's contribution.

Opting out

Employees have the right to opt out of the scheme if they wish. If the employee was automatically enrolled and then opt out within a month of being added to the scheme the employee should receive any money that they have already paid in. Normally however, if an employee opts out of the scheme they will not be able to take any payments from the pension, with the money they paid in being held within the pension until retirement.

If the employee wishes to opt back into the scheme they can write to their employer. For employees who have opted in and then out within the past twelve months the employers have the right not to accept the employee back into the scheme until the twelve months have passed.

Employees taking leave

If an employee takes paid leave then both the employer and employee should continue paying into the pension. The amounts the contributions are made upon can differ however as the employee only needs to pay on the actual pay received, while the employer must pay upon the amount that would have been paid if not on leave.

If an employee goes onto paid maternity leave, or other paid parental leave, pension contributions must still continue being paid. For those on unpaid leave contributions do not need to be made, but employees can seek to make contributions if they wish.

Changing Jobs

Whether the employee stays or leaves the company, the pension shall still belong to them. If payments from the employee stops then the money will stay invested until pension age. If the employee starts a new job they may be able to contribute into their old pension or even combine their pensions together into one. For employees who wish to continue with their old schemes they can discuss this with their new employer to check the viability.