Follow this guide to set up an Auto Enrolment (AE) pension.
Add Scheme Pay Definition #
Company Setup > Pay Definitions > Add…
Select the Company
Select the Pension scheme Pay Template. You will generally require a single scheme, but you can add as many schemes as needed – for example, if directors receive higher contributions than employees.
If you have multiple schemes, you will need to assign a unique Name to each one. The Description is usually the same as the name :
Scheme settings #
First, select the Scheme provider, and the respective settings will then appear:
The settings are normally dictated by company policy and/ or the pension provider scheme.
Name #
Add a name for the scheme, e.g. NEST Directors
Reference #
This must be the scheme reference – usually letters or numbers for the scheme, e.g. EMP123456
Type #
Choose from Salary Sacrifice (SS), Net Pay Arrangement (NPA) or Relief at Source (RAS). These all worked differently with different levels of tax relief. Net pay arrangement (NPA) and Salary sacrifice are dedcuted from gross pay; Relief at source (RAS) is deducted from net pay.
Age Stop #
Usually, leave this set to ‘Do Not Stop’ as the default. But if you want the contributions to stop at a particular age, set it here.
Pay After Leaving #
Usually, this will be unset as pension contributions do not continue for leavers.
PRP (Pay Reference Period) Alignment #
There are 2 types of Pay Reference Periods – either aligned to a Calendar period, e.g. 1st to 31st of the month, or Tax periods (tax week or tax month). This will usually be defined by settings in the pension scheme provider.
Postponement #
If you don’t operate postponement (deferral), the three postponement fields should be left as the default None.
If you operate postponement, the usual option is Maximum, which applies a 3-month postponement. This can be from the date your duties start (when you become an employer, if applicable), or when the employee becomes eligible (e.g., Age 22), or when new employees start. Usually, all 3 settings would be set the same way.
The other options are the Next PRP if you want to move postponement to the next pay run, or the Latest PRP if you’d like everyone to start on the first day of the latest pay run rather than, for example, in the middle of a pay period if a 3-month postponement were applied.
Company contribution #
Set the company contribution percentage. This will then apply to all employees using the scheme. e.g. 3%.
If you intend to use fixed values rather than % values, then you need to select the Type as Unbanded below.
Matching #
If you operate matching, where the company contributions increase based on the worker percentage, tick this box. Otherwise, leave it unticked.
Multiplier #
Usually, this is left at zero. But if you want to increase the company contribution, for example, to provide an NI saving to the employee, you can put the 15% NI rate here as 0.15. This will then have the effect of multiplying the worker contributions by 0.15 = 15% and then increasing the Company contribution by that amount.
Group #
This is the group name as required by the pension scheme. e.g Directors Group
Contribution basis #
There are two types of contribution bases:
- Banded Qualifying Earnings (QE), which starts at a lower band and stops at an upper band – this is the usual type for newer automatic enrolment schemes and has minimum levels
- Unbanded Pensionable Earnings (PE), where pension contributions start from zero and no upper limit on earnings – this is the type for classic pension schemes and can be set to any value
On Leave pay basis #
When an employee is on leave, for example, maternity leave, you can choose to continue company contributions based on the pay as actually paid (as paid), the salary before the leave, Average Weekly Earnings (AWE) before leave or the Higher of Salary or AWE.
Round up #
Usually leave unticked.
Payment source #
The payment source you are using for the payment provider. e.g. My Bank
Click Update to Save the scheme
Pay Item Editor #
Next, you will add the scheme to an employee. Navigate to the Pay Item Editor
Search or select the employee
Select the Scheme and Worker % on the AE Pay Item
Click Update to check the payslip
If you need to make any changes, go back and edit the scheme accordingly.