Employer Pension Obligations & Personal Pension Taxation

Pensions play a vital role both for employers and employees, with various responsibilities and tax considerations to keep in mind throughout employment and retirement.

1. Workplace Pensions & Automatic Enrolment

Employer Requirements

As an employer, you're responsible for:

• Assessing which categories of staff qualify under auto-enrolment rules

• Selecting a compliant pension scheme that meets statutory standards

• Informing employees about the pension scheme, their rights, and how contributions work

• Automatically enrolling eligible employees (typically those aged 22+ and earning over a set threshold)

• Making employer contributions and facilitating employee contributions

• Filing a formal declaration of compliance with The Pensions Regulator

• Monitoring staff and re-enrolling employees every three years, along with confirming ongoing compliance

Different types of workers—eligible jobholders, non-eligible jobholders, and entitled workers—must be identified and managed according to their status. Employers should also stay updated on upcoming law changes, such as lowering the enrolment age or adjusting earnings criteria.

2. Personal & Workplace Pension Tax Benefits

How Contributions Work

Both personal and workplace pension schemes offer:

• Income tax relief on personal contributions, either through payroll or self-assessment

• Immediate tax deductions for employer contributions

• Tax-free growth within the pension fund

Annual Allowance Rules

For the 2024/25 tax year:

• Standard annual allowance: £60,000 (or 100% of earnings if lower)

• Contributions above this limit trigger a tax charge on the excess amount

• Unused allowances can be carried forward for up to three years

• Very high earners may face a tapered allowance down to a minimum of £10,000

• Utilizing carry-forward effectively requires careful planning to avoid penalties

3. Accessing and Using Pension Funds

Upon reaching age 55 (rising to 57 in 2028), individuals can:

• Withdraw up to 25% of their pension pot tax-free

• Choose between an annuity or flexible withdrawals (drawdown)

• Drawdown withdrawals are also taxable

Death Benefits

• Pension funds passed on if you die before age 75 may remain tax-free for beneficiaries

• After 75, withdrawals by beneficiaries are taxed as income

• Lump-sum tax-free allowances are capped (typically 25% of the lifetime allowance)

4. Special Rules & Safeguards

• Salary sacrifice arrangements allow employer contributions to reduce both income tax and National Insurance

• Money Purchase Annual Allowance (MPAA): After certain withdrawals, a reduced allowance (£10,000) limits future tax-relieved contributions

• Pre-owned asset rules ensure that assets given away—but still used—remain taxable

5. How We Support You

We help businesses and individuals by:

• Advising on setting up compliant pension schemes and fulfilling auto-enrolment duties

• Calculating qualifying employee contributions and reporting obligations

• Guiding high earners through annual allowance, carry-forward, and tapering

• Assisting with efficient pension access strategies, including drawdown or lump sums

• Structuring salary sacrifice and handling taxation on pension benefits

• Planning for inheritance and tax-efficient fund transfers

Engaging in proactive pension management not only ensures compliance but also delivers tax efficiency and long-term retirement security. Please reach out for tailored guidance on any pension matter—whether you're an employer setting up a scheme or an individual planning for the future.