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How much do workplace pensions cost?

  • Blog
  • 08 September 2017

Workplace pension schemes are now something that employers will have to provide to their eligible staff, but the costs of doing so may seem unclear. To help you understand the costs associated with workplace pension schemes we’ve put together a list of the areas you should consider.

How much do workplace pension schemes cost?

Costs to the employee

Workplace pension contributions are calculated based on ‘qualifying earnings’, and pension contributions are calculated before national insurance and income tax are subtracted from your pay.

The first £5,876 of pay isn’t eligible for pension contributions. So, if a staff member’s salary before tax is £15,000, their qualifying earnings will be £15,000 minus £5,824, meaning the contribution will be a percentage of £9,124.

During the rolling out period of the scheme, the total percentage of staff contributions will change over time. Before 6th April 2018, they will contribute 0.8%. Between 6th April 2018 and 6th April 2019, they will contribute 2.4%. After that date, the contributions will be 4% of pre-tax salary.

So, on a £15,000 salary,  the staff member’s contributions over time would be £72.99, £220.22, and £367.04 annually.

The additional benefit for employees  saving into a workplace pension is that  tax relief  will be added to their contributions by the Government , scaling from 0.2%, to 0.6%, before staying at 1%  starting in April 2019.                                                       

Costs to the employer

Employers also contribute to workplace pensions.  Employer contributions are calculated the same way as employee contributions are – as a percentage of the employee’s salary, t which will see phased increases in the minimum contribution rateuntil the scheme is fully rolled out.

Currently, this is 1%, rising to 2%, before finally staying at 3% of an employee’s salary.

Who do I need to offer a workplace pension to?

There are some employees that  are exempt from auto-enrolment but may still have a right to join a workplace pension. These are:

  • Staff  under the age of 22
  • Staff over the State Pension age
  • Staff earning under £10,000 annually before tax

However, while these are exempt from auto enrolment, they are still able to join your business’s workplace pension scheme if they choose to. The only difference is that signing them up to it isn’t mandatory.

Some staff members may decide that they would rather not save through a workplace pension scheme. This could be simply trying to keep to a strict budget, or they may pursue alternative long-term saving options.

So, while you have to provide a workplace pension scheme, and many staff will be automatically enrolled, your staff are similarly able to opt out of the scheme if they choose to.

How FSB can help with your workplace pension

FSB’s Workplace Pension service is designed to be a cost-effective and straightforward solution that makes implementing a fully compliant pensions scheme simple for any business.

Benefits of the FSB Workplace Pension scheme include:

  • A simple, one-off set up charge that covers everything you need to set up your scheme
  • A quick and easy set up process, conducted over the phone with our dedicated team that takes up only 30 minutes of your time.
  • Full support and  one-to-one guidance throughout the entire process.

To find out more about workplace pensions and how we can help you provide a compliant solution for your staff visit our FSB Workplace Pension page. Workplace pension services are included as standard with the FSB Business Essentials. To find out more visit our package comparison page to compare benefits of our packages.

FSB Workplace Pensions from FSB

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