What does a workplace pension mean for employees? And why are UK employers legally required to offer one?
A workplace pension is a savings plan that helps employees build financial security for their retirement. All UK businesses, regardless of size, must provide access to a qualifying pension scheme.
This legal obligation is more than a regulatory tick-box; it forms a key part of employee welfare and long-term workforce planning.
Workplace pensions typically involve both employee and employer contributions. In many cases, employees also receive tax relief on their contributions, making it a cost-effective way to save.
Most workplace pensions fall under two categories: defined contribution schemes, where both parties pay in a fixed amount each month, and defined benefit schemes, which provide retirement income based on salary and length of service.
By investing these contributions, employees grow a pot of money that can later be used to draw an income or take as a tax-free lump sum in retirement.
What Is Auto-Enrolment and How Does It Work?
Auto-enrolment is the process where eligible employees are automatically enrolled into a workplace pension without needing to ask to join.
This legislation was introduced by the UK government to increase retirement savings across the population and applies to all employers.
An employee will be automatically enrolled if they:
- Usually work in the UK
- Are aged between 22 and State Pension age
- Earn more than £10,000 a year
This includes workers on agency contracts, maternity or paternity leave, and zero-hours contracts. It does not apply to self-employed individuals or directors who are the only employees of their company.
Employers are responsible for identifying eligible workers, enrolling them into a qualifying pension scheme, and making minimum contributions.
For employees who do not qualify initially due to age or income, employers must monitor their status and enrol them if eligibility criteria are met in the future.
Why Should Businesses Use Auto-Enrolment for Pensions?
For UK businesses, using auto-enrolment is more than just ticking a compliance box. It brings long-term benefits across several dimensions:
1. Legal Compliance and Avoiding Penalties
Failure to set up and maintain an auto-enrolment scheme can lead to:
- Fixed fines of £400
- Escalating daily penalties (up to £10,000 for large employers)
- Investigations and enforcement from The Pensions Regulator
2. Boosting Employee Satisfaction and Retention
Offering a workplace pension shows commitment to staff wellbeing. Auto-enrolment:
- Enhances employer brand and trust
- Encourages loyalty and long-term retention
- Forms part of a competitive employment package
3. Simplifying Processes with Automation
Auto-enrolment can be integrated with payroll systems, reducing manual effort. Providers like Nest and The People’s Pension offer streamlined, cost-effective solutions.
4. Cost-Effective Workforce Investment
With government tax relief and shared contributions, businesses invest in their workforce with minimal financial strain only 3% employer contribution is required by law.
Ultimately, embracing auto-enrolment demonstrates leadership, care for employee futures, and ensures businesses stay on the right side of regulation.
Who Is Eligible for Auto-Enrolment?
Eligibility for auto-enrolment depends on age and earnings. The thresholds for the 2025/26 tax year are as follows:
| Category | Criteria |
| Age | Between 22 and State Pension age |
| Annual earnings | More than £10,000 |
| Weekly earnings | £192 or more |
| Monthly earnings | £833 or more |
Employees earning less than £10,000 may still opt into the pension scheme. If they earn over £6,240 per year, employers are required to contribute as well.
For those earning less, employer contributions are voluntary, but the employee can still join the scheme.
When Must a Pension Be Set Up for an Employee?
If an employee meets the eligibility criteria, the employer must automatically enrol them into the pension scheme within three months. They can also request to be enrolled earlier.
There are cases where eligibility is triggered by changes such as a pay rise or turning 22. In such situations, the pension scheme must reflect the date the eligibility criteria were met. This sometimes results in a higher initial contribution due to backdating.
Employees who don’t qualify at the start of employment may qualify later and must then be enrolled accordingly.
How Much Must Employers and Employees Contribute?
The minimum contribution for workplace pensions under auto-enrolment is 8% of qualifying earnings. This is usually structured as follows:
| Source | Contribution (%) |
| Employer | 3% |
| Employee | 4% |
| Tax relief (government) | 1% |
| Total | 8% |
Qualifying earnings are those between £6,240 and £50,270 for the 2025/26 tax year. However, some schemes calculate contributions differently based on pensionable earnings. Employers must inform their staff about which calculation method applies.
Tax relief plays an essential role. It means employees pay less tax by saving into a pension. Depending on the pension scheme structure, either the pension provider claims tax relief (relief at source) or contributions are taken before tax is deducted (net pay arrangement). Even individuals who do not pay income tax are often still eligible for basic rate tax relief.
Can Employees Pay More or Opt Out of a Pension?
Employees are not limited to minimum contributions. They can ask their employer to increase their payments and, in some cases, employers may match additional contributions up to a limit. Increasing contributions is one of the most effective ways to enhance retirement income.
However, not all employees can afford the default amount. If contribution payments create financial pressure, they can:
- Ask their employer to lower their contribution temporarily
- Pause payments (if allowed by the scheme)
- Opt out entirely
Opting out should be a last resort. Employees miss out on employer contributions and tax relief, which can significantly affect long-term savings. Before opting out, it’s advisable to explore additional financial support or seek debt advice.
How Should Employers Set Up and Manage Auto-Enrolment?
Setting up auto-enrolment requires clear steps to ensure legal and financial responsibilities are met:
| Task | Responsible Party |
| Assess employee eligibility | Employer |
| Choose a pension provider | Employer / Adviser |
| Enrol eligible workers | Employer |
| Notify employees in writing | Employer |
| Set up payroll deductions | Employer / Payroll |
| Submit Declaration of Compliance | Employer |
| Re-enrol every three years | Employer |
Employers can benefit from using payroll service providers to simplify auto-enrolment. Companies such as TunedIn Payroll specialise in payroll management and pension integration, helping small and medium businesses stay compliant without the administrative burden.
Frequently Asked Questions (FAQs)
What is a non-eligible jobholder?
A worker who earns between £6,240 and £10,000 annually. They can opt in, and the employer must contribute.
Is auto-enrolment mandatory for part-time staff?
Yes, if their earnings with a single employer exceed £10,000 annually.
What happens if an employee has multiple jobs?
Each employer assesses eligibility separately. An employee may have multiple pension schemes.
Can employers offer better schemes than required?
Yes. Many employers choose to exceed the minimum contribution or match higher payments.
How often must re-enrolment occur?
Every three years, eligible staff who previously opted out must be re-enrolled.
Are there any exceptions to employer obligations?
Directors without other staff and self-employed individuals are exempt from auto-enrolment.
Can pension contributions be paused temporarily?
In some cases, yes. Employees should discuss options with their employer or scheme provider.
