What should I do if a new employee has their own pension?

In today’s society, it is often the case that a new employee to a business will have their own pension, especially if they have worked at other companies previously. The question is, can you as a company pay your contributions into this?

We caught up with Stuart Belcher, an Independent Financial Planner and Director of Resolve Financial Solutions to find out.

Many individuals have old pensions from past employment or personal contributions. A business employing staff will have its own auto-enrolment scheme, in which an employer (given relevant earnings) would be enrolled into. Starting a new scheme will not affect any of the old schemes an employee has.

An employee can opt out of the company auto-enrolment scheme and the company can pay contributions to a personal pension plan. Generally, this only happens for small businesses due to the extra administration involved and even then, it may only happen for high level employees or the Directors. It is more usual for Directors to opt out of auto-enrolment schemes and invest into their personal pots as they have more options and control of how the funds are invested.

Businesses really need to follow the auto-enrolment process whether employees opt in or out of the work scheme. With Sustainable investing pushing the boundaries, employers may need to be aware of their employee preferences and ensure that Sustainable/Ethical options are available within the current auto-enrolment scheme. While it might be a nice benefit to offer the employee, the extra administration makes it unworkable for most firms.

A minimum of 8% contribution needs to be made into the auto-enrolment scheme, made up of 3% employer and 5% employee contributions. An employer can choose whether the contributions are just based on salary and not bonuses and can pay contributions between minimum and maximum thresholds if desired. Pension contributions are generally processed through payroll though some manual work each month will be needed to ensure correct amounts match, especially if an employee is paid different amounts each month. The specific time at which this is processed may be deferred slightly, of say three months, in line with a probation period if applicable.

If you have any further questions regarding pensions, then please get in touch with Stuart at Resolve Financial Solutions.

*Please note: A pension is a long-term investment not normally accessible until 55 (57 from 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.