How to set up a workplace pension scheme for employees

In the UK, every employer with at least one member of staff has a legal duty to provide a workplace pension scheme. This process is called automatic enrolment. You must assess your staff, set up a qualifying scheme, and make financial contributions to your employees' retirement savings. Failing to comply with these duties can lead to significant daily fines from The Pensions Regulator.

1. Assess your staff

Your duties begin on the day your first employee starts work. You must determine which of your staff members need to be enrolled automatically. Employees are categorised based on their age and how much they earn:

Staff Category	Criteria	Your Responsibility
Eligible Jobholders	Aged between 22 and State Pension age, earning over £10,000 per year (or £833 per month).	You must enrol them and pay employer contributions.
Non-eligible Jobholders	Aged 16–21 or State Pension age to 74, earning over £10,000; OR aged 16–74 earning between £6,240 and £10,000.	They have a right to 'opt-in'. If they do, you must pay employer contributions.
Entitled Workers	Aged 16–74, earning less than £6,240 per year (£520 per month).	They have a right to join a scheme, but you are not required to pay contributions.

2. Choose a pension provider

You need to find a pension scheme that accepts "auto-enrolment" members. Not all schemes do, so you should check this specifically. Most small business owners in the UK look at the following options:

• NEST (National Employment Savings Trust): A government-backed scheme designed specifically for auto-enrolment. It is free for employers to set up and must accept any employer that applies.
• Master Trusts: Large schemes like The People's Pension or Smart Pension which are popular with small businesses due to their ease of use.
• Payroll-linked providers: Check if your current accounting or payroll software (like Xero or Sage) has a preferred partner, as this can make the monthly admin much easier.

3. Set up the scheme and communicate

Once you have chosen a provider, you will need your Letter Code and PAYE reference (provided by HMRC) to register. You must then formally tell your staff in writing how the pension scheme works. This letter must include:

• The date you added them to the scheme.
• The type of pension scheme it is.
• Who the provider is.
• How much you will contribute and how much they will pay.
• How they can "opt out" if they choose to.

4. Managing contributions

By law, a minimum total contribution must be paid into the scheme. Currently, the minimum is 8% of qualifying earnings. This is usually split as follows:

• Employer contribution: Minimum 3%.
• Employee contribution: 5% (this includes 1% tax relief).

You must deduct the employee's share from their wages and pay both your share and theirs to the pension provider by the 22nd day of the following month.

5. Complete your Declaration of Compliance

Setting up the scheme isn't the final step. You must tell The Pensions Regulator that you have met your legal duties by completing a Declaration of Compliance. This must be done within five months of your duties start date. Even if you have no staff to enrol, you must still complete this declaration to confirm you have assessed your workforce.

Top Tip: Use payroll software that automates the assessment and contribution process. Manually calculating pension percentages every month is time-consuming and prone to errors that could lead to compliance issues.

Ongoing Responsibilities

Your duties don't end after the initial setup. Every time you pay your staff, you must monitor their age and earnings in case they cross the threshold to become an "Eligible Jobholder." Additionally, every three years, you must carry out "re-enrolment." This involves putting any staff who opted out back into the scheme to give them another chance to save for retirement.