Do I have to set up a pension, and how much does it cost?

England and Wales: This page sets out the position in full. Scotland: the same position, with no difference — the thresholds, the minimum contributions and the process are UK-wide. Northern Ireland: the same thresholds and minimum contributions, under Northern Ireland’s own parallel legislation with the same figures, and The Pensions Regulator regulates there too.

The band, not the salary

Workplace pension contributions are worked out on a band of earnings, not the whole salary. Budgeting from the whole salary is the mistake that sits in more charity budgets than any other on this subject. This step is for the treasurer or manager.

It follows making the offer and issuing the written statement, which may leave the pension details to follow. The duties are the same across England and Wales, Scotland and Northern Ireland, and the declaration goes to The Pensions Regulator.

Someone reads the minimum employer percentage, 3%, multiplies it by the salary, and puts the answer in the budget. That overstates the cost.

Contributions are worked out on qualifying earnings. Qualifying earnings are the slice of a worker’s pay between two limits:

• the lower limit, £6,240 a year
• the upper limit, £50,270 a year

Pay below the lower limit carries no minimum contribution. Neither does pay above the upper limit. The employer minimum of 3% and the higher total minimum of 8% are both percentages of the slice in between. The Pensions Regulator publishes both in its earnings thresholds table, listed in the sources below.

Take a salary of £25,000. The employer’s minimum contribution comes to £562.80 a year. That is because it is charged on the salary less the lower limit, not on the whole salary.

Budget from the whole salary and you ask a funder for money you will never spend. Or, worse, you tell yourself a post is unaffordable when it is not.

The limits have not moved for several years, and no change was made for the current tax year. They are still reviewed every year, which is why this page never types them.

Who you have to assess, and when

Every worker is assessed from their first day. Eligibility is your assessment, not the worker’s request. A charity that waits for someone to ask about a pension has already missed the point at which the duty began.

The first test is pay. A worker who earns more than £10,000 a year, and who meets the age conditions, must be enrolled automatically. That is the core of auto-enrolment. The assessment still covers everyone, not only the people you expect to enrol.

The duty does not wait for a second employee. A charity with one member of staff has exactly the same duties as one with fifty. Tollgate, below, has one.

The declaration of compliance, and its deadline

Once you have enrolled your staff, you must tell The Pensions Regulator that you have done so. The declaration of compliance is that confirmation, and it is a required step, not a courtesy.

When it is due. Five calendar months from the employer's duties start date (e.g. duties starting 1 April means the declaration is due by 31 August). If the deadline falls on a weekend or bank holiday, the next working day is acceptable.

Where. On the Regulator’s own online declaration service.

What you will need to hand. Collect these before you start:

• your PAYE reference and letter code, or your accounts office reference number
• how many people you employed on your duties start date
• how many staff you enrolled into a pension scheme
• how many staff were already in a qualifying scheme before that date
• your pension scheme details — the employer pension scheme reference or the pension scheme registry number

Everything in that list comes from your payroll set-up and from your pension provider. None of it is hard to find. The trap is leaving it to the last week and discovering your provider has not yet issued a scheme reference.

Postponement: an option with a notice clock attached

You may postpone assessing a worker for a limited period. The rules, as The Pensions Regulator sets them out:

• How long. Up to 3 months from the date a worker starts employment, or from the date they become an eligible jobholder by age/earnings.
• The notice. Workers must be told about postponement within 6 weeks of their first day of employment (or the date they met the eligible-jobholder conditions).
• If you miss the notice. If the 6-week notice is missed, the employer must calculate and make backdated contributions to cover the period the worker should have been enrolled.
• When it ends. The employer must assess eligibility and enrol qualifying workers at the end of the postponement period.

A word on where this section comes from. The declaration and re-enrolment rules were read on The Pensions Regulator’s own pages. The postponement rules were read in a pension provider’s employer guidance, which attributes them to the Regulator.

They are long-standing rules and unlikely to have changed. But if postponement matters to your decision, check the Regulator’s own guidance before you rely on it.

Postponement is a choice, not a default. If you do not want the notice to manage, do not postpone.

Re-enrolment: the duty comes back

Auto-enrolment is not a one-off. You re-enrol on a fixed cycle, and you declare again each time.

• How often. Every 3 years.
• Which date. A 6-month window centred on the third anniversary of the duties start date — from 3 months before to 3 months after that anniversary.
• The re-declaration. Due within the same period as the first declaration. The first time, it runs from the third anniversary of your duties start date. After that, it runs from the third anniversary of your most recent re-enrolment date.

Put the re-enrolment window in the charity’s calendar on the day you file the first declaration. The deadline is the one most small employers miss, because nobody who set up the scheme is still thinking about it by then.

This page does not set out how your duties start date is fixed; the Regulator’s pages cover it. Every deadline above runs from that date, so find it and record it.

What a workplace pension adds to the cost of a post

The pension is one of three statutory costs that sit on top of a salary. On £25,000, salary plus employer National Insurance plus the minimum employer pension comes to £28,562.80 a year. Use that total, not the salary, when you cost the post and when you ask a funder for it in the project budget.

Three things are left out of that total. Employers’ liability insurance is compulsory but its premium is set by the market. Statutory sick pay depends on whether anyone is ill. And the employee’s own pension contribution comes out of their pay, so it is not a cost to the charity at all.

Scheme charges were not covered by the research, and neither was a comparison of schemes. This page does not recommend one; the choice is yours.

With the pension running, the next step is for posts paid for by a time-limited grant: manage a fixed-term grant-funded post to its end.

Common mistake: calculating contributions on the whole salary

It happens because the percentage — 3% from the employer — is quoted without the band. Contributions are charged on qualifying earnings — the pay between £6,240 and £50,270 — not on the salary. Getting it wrong overstates the cost by a margin a small budget notices.

Common mistake: assessing only the staff who ask about a pension

A charity with one employee often assumes the duties start later, or start when someone asks. They do not. Every worker is assessed from day one against the earnings trigger of £10,000. Eligibility is the employer’s assessment, not the employee’s request.

Common mistake: treating the declaration of compliance as optional

The thresholds are well known. The process around them is not, so the declaration gets missed. It is a required step, with a deadline that runs from your duties start date. So is the re-declaration after each re-enrolment. Both are set out in the declaration and re-enrolment sections.

Worked example

Tollgate Youth CIO takes on its one employee, a youth worker. Her pay is above the earnings trigger in the thresholds table, and she meets the age conditions. So she is enrolled automatically from her first day.

When the treasurer first costs the post, she budgets the employer minimum on the whole salary. Checked against the band, the real figure is lower. At a salary of £25,000, the employer minimum is £562.80 a year, because only the pay above £6,240 counts. The grant bid is corrected before it goes in.

Tollgate chooses a scheme and enrols her. It then files its declaration of compliance with The Pensions Regulator inside the deadline that runs from its duties start date. The treasurer notes that date and puts the re-enrolment window in the calendar straight away.