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A Guide to Employer Pension Contributions + Calculator

employer workplace pension scheme

Paying employer pension contributions is an obligatory part of running a company. As a company or organisation, you should be enrolling eligible employees into a workplace pension scheme. The amount you pay, however, depends on the scheme. As a company or organisation, you don’t want to risk being fined by The Pension Regulator (TPR) so make sure to continue reading to learn the ins and outs of employer pension contributions!

Employer’s Contribution to Pension

As an employer, you must be enrolling your eligible workers into a workplace pension scheme. However, the percentage that the employees and you as an employer are paying depends on the pension scheme that the company has chosen. As of April 2019, each employee pays a minimum of 5% while the employer pays at least 3% for a total of 8%.

The amount is also based on the employee’s total earrings (between £6,240 and £50,270 a year before tax) including the person’s wage, overtime, bonus or commission, sick pay, as well as maternity or paternity leave.

All employees must be automatically enrolled into a workplace pension scheme if the following applies. The employee must be classified as a worker, are aged between 22 and the state pension age, earn at least £10,000 / year and usually work in the UK. 

employee payslip template

If you want to be a great employer and offer some extra benefits to your team, you can decide to pay more than the legal minimum which would mean that the employee can pay less, as long as together you’re reaching the total minimum contribution. You can also (up to a certain amount) offer contribution matching, meaning you’ll match the amount that your employee is paying into their pension scheme.

Once you’ve enrolled the employee into the pension scheme, you must inform them of:

  • The date added
  • Type of pension scheme
  • The amount that you and the employee should be contributing 
  • How the employee can leave the pension scheme if they choose to
  • How the tax relief works and applies to the employee

Exceptions

As an employer, you do not need to enrol an employee:

  • If you or they already agreed to terminate the job / have given notice of termination
  • If the employee has lifetime allowance protection (ie. they have presented a certificate from HMRC)
  • They’ve already claimed the pension that you arranged 
  • They received a workplace pension scheme payment, left and rejoined the company within 12 months of receiving the payment 
  • If they opted out of a pension scheme arranged by you more than 12 months before their staging date
  • They’re a citizen of an EU state and enrolled in the EU cross-border pension scheme
  • If they’re in a limited liability partnership
  • They’re classified as a director but don’t have an employment contract and employ at least one person in their company

Besides these, you also do not need to enrol an employee who earns less than £120 a week,  £480 in 4 weeks, or £520 a month. If they earn more than this, you as an employer must contribute the minimum amount to their pension scheme. 

A Change in Employee’s Take-home Pay

Understandably, as your employees pay towards their pension, their take-home pay will consequently be reduced. However, this brings other benefits to the employee:

  • They can be entitled to tax credits
  • They’re entitled to an income-related benefit
  • Their student loan repayments may be reduced.

Salary Sacrifice or SMART pension scheme

In order to implement a salary sacrifice also known as a Smart Pension Master Trust (SMART) pension scheme, both the employer and the employee must agree to pay a part of the employee’s salary directly into their pension. This may mean that both the company and the employee pay less tax and National Insurance. 

Logging into your SMART Pensions scheme will show employees when their retirement date is, how much money they’ve saved up, how much their employer contributed to their pension fund, and how to make investment decisions for their savings.

If you pay income tax and pay into a personal or workplace pension scheme, the government will most likely add money to your pension as tax relief. 

To know what kind of amount you’re paying in, try the workplace pension calculator. Besides the calculator, the MoneyHelper website can also help you find an independent financial advisor (IFA) for both companies and employees. 

State Pension Age in the UK & Ireland

First, let’s clarify what is a state pension age. Your state pension age is determined by your year of birth and indicates the earliest that you can claim your pension. 

The UK state pension is currently under refinement, however, at the moment, the state pension age in the UK is 66 for both women and men. For people born after the 5th of April 1960, this number will increase to 67 and eventually 68. 

The minimum Irish state pension age is currently 66 years old.

State Pension Amount in the UK & Ireland

In the UK, the amount you receive depends on your National Insurance record and the required minimum of 10 years of employer’s contribution to pension. In order to get the full amount, you’ll need to be paying state pension contributions for at least 35 years. 

Currently, in the tax year 2022/2023 the full state pension is £185.15 a week or £9,627.80 yearly. You could be entitled to more than £185.15 a week if you’ve been building up an entitlement to the old Additional State Pension scheme. 

The Irish state pension normally amounts to €248.30 a week or €12,911.60 yearly. Once you reach 8’ years of age, you automatically receive €10 more every week. If you’re living alone you might also be entitled to a Living Alone Increase

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We hope this guide through Employer Pension Contributions was useful! Did you have any additional questions? Make sure to pop them in the comments below and discuss them inside our Factorial Community!

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