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Do I have to give employees a Pension? An Employers Guide

Updated: May 30, 2023

Do I have to give employees a Pension?

Do I have to give employees a pension you ask, pensions are a crucial component of a well-rounded benefits package for your employees, but they're often perceived as having a bad reputation or are just misunderstood.

In this blog, we'll take a closer look at pensions, including the different types of pensions available and the requirements for the provision of pensions in the UK. Check out the link at the end of the blog to our recent podcast covering all things pensions!

Do I have to pay into a pension for my employees?

Under the UK's Pensions Act 2008, employers are required to automatically enrol eligible employees into a workplace pension scheme and make contributions towards their retirement savings. At the time of writing this blog, Eligible employees are those who are at least 22 years old, earn more than a minimum earnings threshold (currently £10,000 per year), and work in the UK.

How much has to be paid into a pension?

The minimum contribution levels for employers, which are set by law, have been gradually increasing over time. As of 2022, employers must contribute at least 3% of an employee's qualifying earnings towards their pension, while employees must contribute a minimum of 5%. These contribution levels will increase to 5% for employers and 8% for employees by 2025.

While employers are not required to offer a pension plan beyond the automatic enrolment requirements, many employers do choose to offer additional pension benefits to their employees as part of their overall benefits package in order to attract and retain talent. We're also facing a pensions crisis in the UK, where people just aren't saving enough for their retirement, so the more employers can help by providing enhanced pension contributions the better!

What if my employee doesn't want to pay into a pension?

Under UK law, employers are required to automatically enrol eligible employees into a pension scheme and make contributions towards their retirement savings through the government's automatic enrolment program. This means that all eligible employees will be enrolled in a pension scheme, even if they do not want to participate.

However, employees do have the option to opt out of the pension scheme if they want to. If an employee opts out within the designated opt-out period (usually one month), any contributions made by the employer will be refunded to the employee. The employee will then no longer be enrolled in the pension scheme, and will not receive any further contributions from the employer.

It's important to note that whilst employees have the option to opt out of the pension scheme, it is generally in their best interest to participate in one to avoid falling into the trap of not having enough income when they retire.

As an employer, it's important to communicate the benefits of the pension scheme to your employees and encourage them to participate. This can include providing information about the tax benefits of pension contributions, the importance of saving for retirement, and the potential long-term benefits of participating in the scheme. Some organisations go the extra mile and provide their employees with access to a Financial Advisor as part of their benefits which also helps with getting people to take retirement savings seriously.

What types of pensions are available in the UK?

  1. The state pension is a government-provided pension that provides a basic level of retirement income to eligible individuals. The amount of the state pension is based on an individual's National Insurance contributions, and the age at which they claim it.

  2. Occupational pensions, also known as workplace pensions, are provided by employers to their employees. These pensions can be defined benefit or defined contribution schemes, and are designed to provide retirement income in addition to the state pension.

  3. Personal pensions are individual retirement savings plans that can be set up by individuals themselves, outside of an occupational pension scheme.

What is a Digital Pension?

A digital pension in the UK is a type of pension scheme that is managed entirely online, without the need for any paper-based forms or documents. Digital pension providers typically offer a user-friendly online platform that allows customers to manage their pension investments and make contributions through a website or mobile app.

Digital pensions are often designed to be more accessible and transparent than traditional pension schemes, offering easy-to-understand information about investment options and fees. They can also offer greater flexibility, allowing customers to manage their pension investments on their own terms.

We recently caught up with Chris Eastwood from Penfold, a provider of digital pensions, you can watch the interview here;

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  • All information within the post is provided for guidance only and relates to the law in the UK, always seek your own legal advice

  • The information with this post was correct at the time of publishing, March 2023 but may be subject to change

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