An important part of running your new workplace pension scheme will be managing your employees expectations of what will happen if your businesses circumstances change. Below we cover some of the situations that may arise for you or your employees in the future.
If you go through financial trouble
The worst scenario that your business may face in the future is financial trouble and even bankruptcy. If this were to occur, your employees will need to know how secure their savings will be.
Depending on the type of pension that your workplace pension scheme is, bankruptcy may affect the security of your employees’ pension savings.
If your workplace pension scheme is a Group Personal Pension, your employees’ pensions will be protected. This is because it will be the pension provider who runs the pension scheme directly.
If any of your employees are diagnosed with a condition that affects their ability to work, they may choose to take the option of early retirement; or, depending on the type of pension that you provide, they may have an option to take an ill health pension.
In the situation that an employee is diagnosed with a critical illness which means their life expectancy is less than 12 months; they may be able to take the whole of their pension pot as a lump sum.
When an employee is made redundant, they will need to think about what they want to do with their pension savings going forwards.
They can transfer their pension pot to a pension scheme run by a new employer or transfer the value into their own personal pension scheme.
They can keep the pension scheme that they have with you and withdraw the pension upon retirement – this is known as a ‘deferred’ pension.
Employees are also able to use their take redundancy payment to make additional pension contributions. With employer permission they can also sacrifice part of their redundancy payment as an employer contribution (this is referred to as ‘redundancy sacrifice’).
Whenever you hire a new member of staff, you will need to assess whether they are eligible to join your workplace pension scheme. If they earn £10,000 per annum or more and are aged 22 or above, they will need to be auto-enrolled. If new employees earn less than £10,000, or are aged 16-21 or state pension age-74, they can still choose to opt in to the workplace pension scheme.
If you have a valid business reason, such as hiring new staff on short term contracts or expected fluctuations in their income, you can postpone assessing new employees for their auto-enrolment eligibility for up to three months.
If an employee takes parental leave whilst they are a member of the workplace pension scheme, they will continue to remain a member and continue to make employee contributions and receive employer contributions to their pension pot during their leave of absence.
For both defined benefit and defined contribution pension schemes , the employer contributions paid into the employee’s pension, will be based on the amount of pensionable service from before the employee went on parental leave. The employee contributions however, will be based upon the actual earnings during parental leave.
For defined benefit schemes, if an employee decides to take a period of unpaid leave, this will not count towards continuous service. But the time before and after the employee takes unpaid leave will count as continuous service and they can then choose to add additional contributions once they return to work.