What are the statutory pension benefits? What do they cover?
Most employees receive a state pension from the government, which covers an individual’s basic needs; however, the benefit is relatively small.
Employers must enroll all eligible workers in a workplace pension scheme, which includes employees who are:
- Aged between 22 and the state pension age;
- Earn at least GBP 10,000 per year; and
- Usually work in the UK
All eligible employees will be automatically enrolled in the pension scheme. Employees are unable to opt-out before this auto-enrollment. After they are registered with the pension provider and receive their pension details, they have a one-month period to opt-out. If an employee opts out within that period they will receive a refund of any money they paid into the scheme. If they choose to leave the scheme outside of this opt-out period, they will instead simply be ceasing active membership in the plan.
Both employers and employees make contributions to the pension. Qualifying earnings for contributions include:
- Statutory sick pay
- Statutory maternity, paternity, or adoption pay
Please note that every three years, anyone who has opted out more than 12 months prior to the re-enrollment date will be automatically re-enrolled and will see a pension contribution deducted from their payslip. This is an amount that can be easily refunded the following month once your supported employee has opted out again and we have received confirmation from the provider. For more information on re-enrollment, see this resource.
There is no mandatory retirement age in the U.K. The current age at which people become eligible for the state pension is 65 (set to increase gradually to age 67 by 2028). Individuals will need to check with the relevant government authority to confirm their eligibility. Individuals can be eligible for either the New State Pension or Basic State Pension, depending on when they were born.
Individuals can claim their New State Pension entitlement if they have at least 10 years of National Insurance contributions and were born on or after:
- April 6, 1951 (for men)
- April 6, 1953 (for women)
What pension benefits do most employers offer?
Employers often offer supplemental retirement benefits, typically by contributing an additional percentage to their employees’ pension funds. Employers typically contribute 3–5%, but Velocity Global recommends matching the 5% that employees contribute.
Please note if you elect to offer a Basic Pay pension, Velocity Global’s U.K. entity requires a minimum of 3% (employer) and 5% (supported employee), totaling 8% basic pay to go toward the pension each month. Permutations are allowed when higher percentages are given by either party. Fixed amounts, however, are not advisable.
For Velocity Global’s U.K. entity, it is standard to offer a Basic Pay pension, which is also common practice in the U.K.
Upon agreement, your supported employee may also engage in a salary sacrifice arrangement (also called a salary exchange). Under this agreement, your supported employee agrees to reduce their earnings by an amount equal to their pension contributions, and you agree to pay the total pension contributions. This results in National Insurance tax savings for both you and your supported employee.
Can an employer make direct contributions to an employee’s private pension?
Velocity Global cannot facilitate direct contributions into your supported employee’s private pension in the U.K. unless the pension is administered by Standard Life. Employees can always invest their net income into private pensions; however, Velocity Global does not manage this, and we cannot pay into them directly.
What are the details of Velocity Global’s pension plan in the United Kingdom?
The pension arrangement of Velocity Global in the U.K. is the Standard Life auto-enrollment workplace-defined contribution plan. This means that the amount your supported employee gets back depends on how much has been paid in, the performance of the investments, and how they decide to take the money. This is a tax-efficient investment plan where the employee- and employer-sponsored contributions will automatically be invested in the default investment solution. The default investment solution is the Sustainable Multi-Asset Lifestyle Profile which applies an enhanced approach to responsible investing. After your supported employees are auto-enrolled into the scheme, they can choose from a wide range of different investment funds. At retirement age, they may, subject to certain conditions, choose from the following benefit options: a tax-free lump sum plus income drawdown, a tax-free lump sum plus an annuity, a drawdown only, or an annuity only.