What is a small business pension scheme? + How to set one up

As a new business founder, you’ll have many aspirations, but you're probably already finding that your day-to-day is taken up with a lot of red tape. Essential duties, like setting up a small business pension scheme, will always fall to you.

And it’s not just the time and the effort of the work, but the responsibility that comes with it. You can’t gloss over these business-building tasks, as making a mistake can have serious consequences down the line. We’ve gone through this ourselves at Charlie, so we’re writing from direct experience as a fellow small business.

I’m Charlie’s Chief of Staff and I lead our HR team, but my remit also extends to payroll, pensions and finance. So I understand the challenges you face when setting up these complex business processes — and typically, without any prior knowledge or experience. But you’ve always got to look like you know what you’re doing. It’s a lot to juggle!

That’s why I wanted this blog to guide you through setting up a pension scheme for small business. It will help you understand the legal requirements, and provide you with expert tips so you can confidently get your pension scheme up and running.

Let’s start with the basics and take it from there…

What is a small business pension scheme?

A small business pension scheme is a way for employees to save for their retirement while they’re working.

It is one of the mandatory employee benefits in the UK.

Choosing the right pension scheme for small business will benefit both you and your team — they’ll have more money for when they retire, and you’ll likely pay less in administrative charges.

Do small businesses have to have a pension scheme?

Yes, small businesses must offer their employees a pension scheme.

As an employer, having a workplace pension scheme is a legal requirement. So you'll need to find and decide on a small business pension scheme yourself, or seek advice from your accountant or financial adviser.

Employers need to enrol and make a contribution for all ‘eligible’ employees, which means anyone on your team who:

Is aged between 22 and the State Pension age
Earns £10,000 a year or more
Works in the UK (includes those based in the UK, but who travel abroad for work)

You, the employee, and the government all pay into the pension scheme.

Setting up a small business pension scheme: how to choose a scheme

The first part of setting up a small business pension scheme is learning what’s available, so you should study the schemes on offer before deciding on one.

To help you filter the available pension schemes, here are the main things to look for:

Is it available to all of your employees — i.e. will it accept every member of your team?
How much does it cost (both you and each employee)?
Can you use it for automatic enrolment?
Does it use a good tax relief method?
Does it work with your payroll system?

The Pensions Regulator has more information on how to decide on a pension scheme, including a list of providers who are open to small employers.

Legally, you and your employees have to pay a minimum amount into the pension scheme, but this can depend on which scheme you choose. As an employer, you may be fined if you don’t pay the minimum amount or fail to pay it on time.

Find out more about employee benefits for small businesses.

Setting up a small business pension scheme: step-by-step

There are four main steps you need to follow to set up a small business pension scheme:

1. Decide on your small business pension scheme

You want a pension scheme that accepts all of your staff and can be used for automatic enrolment.

2. Confirm who you are putting into the pension

You need to decide which employees are being enrolled into your chosen pension scheme by your ‘duties start date’ (the date you employ(ed) your first team member).

3. Inform your team

You then need to write to each of your employees to let them know they’re being automatically enrolled into the pension scheme.

4. Declare compliance

Finally, you need to inform The Pension’s Regulator that you have met your legal duties as an employer for automatic enrolment.

You can do this by completing their 'Declaration of compliance' online. The Pensions Regulator also has a tool for employers which helps you to work out what you need to do and by when.

CHARLIE PRO TIP

Take your time with step 1, but get started as soon as possible – finding the right pension scheme for your small business requires research, and this can take time but it will be worth it (and will likely make the next steps easier).

Seek advice from your accountant or financial advisor, or talk with other small business founders and find out what made them chooser their small business pension scheme.

Can Charlie help?

While we don’t offer pension schemes at Charlie, we do offer HR expertise, support and advice. We help small businesses by automating and simplifying complicated HR processes — saving them time, money and faff. With Charlie, you’ll also have one secure place to store all of your employee details and documents.