All employers must provide workers with a qualifying workplace pension. This is called automatic enrolment.

Read more about automatic enrolment into a workplace pension.

Pensions and tax relief

There are other benefits to providing an occupational pension scheme. For pension schemes registered with HM Revenue & Customs (HMRC), extensive tax relief is available:

• employees' contributions attract income tax relief
• employer's contributions qualify for corporation tax relief (where the employer is a corporation). If the employer is unincorporated (for example partnerships) they may be subject to income tax relief
• scheme investments qualify for income tax and capital gains tax relief

This makes pensions a tax-efficient way of increasing employee benefits and remuneration.

Annual allowance

The pensions tax regime has been simplified to remove the various limits on what could be paid by or on behalf of an individual into different types of tax-privileged pension schemes. Now up to 100% of earned income can be contributed to a registered pension scheme with the benefit of tax relief. However, there is an overall ceiling for each individual on the annual amount of pension savings that can benefit from tax relief. This limit is called the annual allowance and is £60,000 for 2024-25.

Lifetime allowance

The lifetime allowance was abolished with effect from 6 April 2024.

Apart from the annual allowance, there are no tax rules on how quickly entitlement can be built up in a tax-privileged pension scheme, but individual pension schemes may set their own limits.

An occupational pension scheme is normally set up by an employer (known as the sponsoring employer) to provide a pension for employees. But since 6 April 2006 it has been possible, provided the pension scheme rules allow, for employees with other employers to be covered by the scheme, including anyone who does not work for the employer.

There are two main types of occupational pension scheme - defined benefit and defined contribution.

Defined benefit pension schemes

In defined benefit schemes (also known as salary-related schemes), the size of the pension depends on the final salary of the employee and the number of years that contributions have been made. Contributions are held in trust and are pooled to provide an investment fund, which is then deployed to achieve additional growth in value.

If the scheme is running a deficit, the employer is responsible for finding the money to bridge the gap, therefore it is necessary for the employer to ensure that their contributions are sufficient to make up any deficit.

If the scheme is in surplus the trustees may decide to use it to improve the benefits to members or the employer may decide to take a 'contributions holiday' by ceasing to pay into the fund. Under certain circumstances, the surplus may be returned to the employer. However, in the current economic climate, surpluses are not common.

The Pensions Regulator was established, following a series of reviews by the government, with a view to protecting members of work-related pension schemes. Read about the Pensions Regulator's approach to regulating workplace pensions.

The Pension Protection Fund (PPF) was established to provide compensation to members of eligible pension schemes when employers become insolvent, leaving pension schemes with insufficient assets to pay employees their pension entitlement.

Defined contribution pension schemes

In defined contribution schemes (also known as money purchase schemes), the size of the pension depends on the value of the investment fund. If the investment fund does well, the employee gets a higher pension. If it does badly, the employee will receive less than they might have anticipated. In most defined contribution schemes, funds are held in the name of each individual member, although they may be managed centrally. It may therefore be easier for individual members to separate their pensions from those of other employees, and to move on if they want to.

HM Revenue & Customs (HMRC) offers the Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. It is compulsory to file some forms and returns online including applications to register a pension scheme, registered pension scheme returns, accounting for tax returns, and notification of winding up a registered pension scheme.

Stakeholder pensions work in the same way as personal pension arrangements and are normally accessed through an employer, although they can also be bought directly from the pension provider.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

If you had employees in a stakeholder pension scheme before 1 October 2012, you must carry on taking workers' contributions from their pay and send them to the scheme if the worker wants you to.

Read Pensions Regulator guidance on stakeholder pensions.

Read nidirect guidance on stakeholder pensions for individuals.

A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions

Personal pensions usually offer a wide choice of funds in which to invest. The two basic options are:

With-profit

Contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

Unit-linked

These funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflects market performance more accurately than with-profits funds.

Administration costs

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension providers, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice.

If you arrange for a pension provider to set up a GPP, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.

There are a variety of pension schemes that can be registered with HM Revenue & Customs (HMRC) designed specifically for directors and owners, although they can also be set up for the benefit of other employees.

The changes in the tax rules for pension schemes have given employers and pension providers greater flexibility in the design of pension schemes. Here are some examples of registered pension schemes that may be available for directors and owners, although some can also be set up for the benefit of other employees.

Executive pension plans (EPPs)

Insurance companies tailor these defined contribution occupational schemes to the individual. The employer must make contributions, and the employee can too. Rules on tax relief, contribution limits, and tax-free lump sums are the same as for other registered pension schemes.

Following the simplification of the tax regime the relative advantage of EPPs - that they allowed a fast build-up of entitlement over 20 years rather than 40 - has to some extent been undermined.

For information on different types of occupational pensions, see how to know your legal obligations on pensions.

Self-administered schemes (SASs) (also known as Investment Regulated Schemes or occupational pension schemes)

These are registered pension schemes and are generally set up for directors/owners of companies. They allow a small group of trustees appointed by your company to choose how to invest the funds. The scheme administrator, together with the trustees, is responsible for ensuring that the scheme remains within HMRC rules.

The main advantage is that an SAS can be very flexible in terms of investment choice as it isn't limited to stocks and shares or insurance funds. Its investments include commercial buildings (for example, the building used by the employer), loans to the employer, and the purchase of unquoted company shares.

Self-invested personal pension plans (SIPPs) (also known as Investment Regulated Schemes)

These allow you to select your own pension fund investments. They operate on a similar basis to insured personal pensions with access to collective funds, except that HMRC also allows direct investment in UK and overseas quoted securities as well as commercial property.

Tax rules governing all these pension plans have been simplified. However, you may want to consult a professional adviser before making a decision. Find a local qualified adviser.

HMRC offers a Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. Some forms must be filed online using this service.

There are a variety of unregistered pension options available to directors and owners, but they don't benefit from all the tax advantages of a pension scheme registered with HM Revenue & Customs (HMRC). These are specialist areas and you should obtain advice before setting up one of these types of schemes.

Employer-financed retirement benefit schemes (EFRBS)

EFRBS (formerly known as Funded Unapproved Retirement Benefit Schemes and Unfunded Unapproved Retirement Benefit Schemes) are targeted at owner-managers. They are unregistered pension arrangements set up as a top-up scheme, supplementing an HMRC-registered scheme. Following the simplification of the tax regime, many of the advantages of these schemes no longer exist.

In an EFRBS, employer contributions:

• are not liable for tax or National Insurance contributions as they are made
• are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

• subject to income tax (there is no entitlement to a tax-free lump sum)
• not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
• subject to inheritance tax

Reform of the tax rules governing pensions has affected the relative attractions of unregistered pension arrangements, so you might want to consult a professional adviser before making a decision to invest.

Before choosing an occupational pension scheme you first need to weigh up the differences between the pension options available to you and your business.

A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme that best suits your business. Find a local qualified adviser.

Occupational pensions

Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for paying benefits to employees. There are two types of occupational pension schemes - defined benefit (also known as salary-related) and defined contribution (also known as money purchase). 

Defined benefit pensions

Defined benefit pensions provide guaranteed pension sums when the pension matures. They too are made up of contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit. Defined benefit pensions are now mostly offered by large companies and the public sector.

Defined contribution pensions

Defined contribution pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer's liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.

Group personal pensions

A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.

Stakeholder pensions

Stakeholder pensions must meet minimum standards which ensure they are flexible and portable with capped management charges.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

The laws and regulations governing pension schemes are less complex than they were following tax simplification, but deciding which type of scheme would suit your business can be tricky. There are many organisations that can provide you with further help and advice with workplace pensions.

Pension advisory organisations

MoneyHelper provides free information and advice on pensions. You can also call them on Tel 0800 011 3797.

You can find a local qualified adviser that can help you decide what you want from a pension scheme, inform you of the costs, tax breaks, and good and bad points of each type, and give you some pointers on coping with the tax regime. You may find it helpful to find an adviser with experience in advising businesses operating in your sector. Industry contacts might be able to recommend one.

Employees may also need information on saving for retirement, so you may wish to consider offering access to pensions advice as an employee benefit. This can be done without incurring a tax charge providing the advice or information made available is offered to all employees and costs you less than £500 per employee per year. It will allow advice not only on pensions but also on the general financial and tax issues relating to pensions.

The Pensions Regulator has advice regarding automatic enrolment for employers. You can also contact the Workplace Pension Information Line on Tel 0845 600 1268.

When you choose a pension scheme, you need to consider key issues such as:

• The level of funding you as an employer are prepared to give.
• What income do you want your pension to deliver to your employees.
• The extent to which you will have to consult with employees about changes to the scheme(s) you offer.
• Whether you want to be able to change your pension scheme easily. Generally, you will not be able to do this retrospectively, so it's important to try to get it right the first time.
• Whether there are areas in which you would like/not like your pension scheme to invest, for example in ethical investments.
• The charges, costs, and penalties.
• The reputation of the pension provider, but remember that past performance is no indication of future returns.
• What happens to the pension benefits if a member dies.
• Whether your scheme will comply with changes such as automatic enrolment into workplace pensions. Read more on automatic enrolment into a workplace pension.

Pensions advice

If you are unfamiliar with the legislation and tax regulations that govern pension schemes, you may find it useful to consult an independent financial adviser or pension adviser before you make a decision.

You can obtain free information, guidance, and advice about pensions from MoneyHelper.

Alternatively, you can find a local qualified adviser dealing in retirement pensions and annuities.

Review and monitor pensions

Your situation, and that of your employees, will change all the time. It is a good idea to review their pension needs regularly and monitor the fund to make sure it is giving good returns.

If you have any complaints about how the overall pension scheme is run, your first point of contact will vary depending on the type of scheme you have. If the scheme is defined benefit or defined contribution, you should contact the trustees, or if you have concerns about the trustees, speak to the Pensions Regulator. If the scheme is contract-based, you should contact the provider, or get in touch with the Pensions Regulator if you have concerns about the provider. Read Pensions Regulator advice for employers. The Pensions Ombudsman is the final arbiter of any problems.

Employers who run into problems with salary-related schemes should seek professional or legal advice. Choose a solicitor for your business.

All employers must provide workers with a qualifying workplace pension. This is called automatic enrolment.

Read more about automatic enrolment into a workplace pension.

Pensions and tax relief

There are other benefits to providing an occupational pension scheme. For pension schemes registered with HM Revenue & Customs (HMRC), extensive tax relief is available:

• employees' contributions attract income tax relief
• employer's contributions qualify for corporation tax relief (where the employer is a corporation). If the employer is unincorporated (for example partnerships) they may be subject to income tax relief
• scheme investments qualify for income tax and capital gains tax relief

This makes pensions a tax-efficient way of increasing employee benefits and remuneration.

Annual allowance

The pensions tax regime has been simplified to remove the various limits on what could be paid by or on behalf of an individual into different types of tax-privileged pension schemes. Now up to 100% of earned income can be contributed to a registered pension scheme with the benefit of tax relief. However, there is an overall ceiling for each individual on the annual amount of pension savings that can benefit from tax relief. This limit is called the annual allowance and is £60,000 for 2024-25.

Lifetime allowance

The lifetime allowance was abolished with effect from 6 April 2024.

Apart from the annual allowance, there are no tax rules on how quickly entitlement can be built up in a tax-privileged pension scheme, but individual pension schemes may set their own limits.

An occupational pension scheme is normally set up by an employer (known as the sponsoring employer) to provide a pension for employees. But since 6 April 2006 it has been possible, provided the pension scheme rules allow, for employees with other employers to be covered by the scheme, including anyone who does not work for the employer.

There are two main types of occupational pension scheme - defined benefit and defined contribution.

Defined benefit pension schemes

In defined benefit schemes (also known as salary-related schemes), the size of the pension depends on the final salary of the employee and the number of years that contributions have been made. Contributions are held in trust and are pooled to provide an investment fund, which is then deployed to achieve additional growth in value.

If the scheme is running a deficit, the employer is responsible for finding the money to bridge the gap, therefore it is necessary for the employer to ensure that their contributions are sufficient to make up any deficit.

If the scheme is in surplus the trustees may decide to use it to improve the benefits to members or the employer may decide to take a 'contributions holiday' by ceasing to pay into the fund. Under certain circumstances, the surplus may be returned to the employer. However, in the current economic climate, surpluses are not common.

The Pensions Regulator was established, following a series of reviews by the government, with a view to protecting members of work-related pension schemes. Read about the Pensions Regulator's approach to regulating workplace pensions.

The Pension Protection Fund (PPF) was established to provide compensation to members of eligible pension schemes when employers become insolvent, leaving pension schemes with insufficient assets to pay employees their pension entitlement.

Defined contribution pension schemes

In defined contribution schemes (also known as money purchase schemes), the size of the pension depends on the value of the investment fund. If the investment fund does well, the employee gets a higher pension. If it does badly, the employee will receive less than they might have anticipated. In most defined contribution schemes, funds are held in the name of each individual member, although they may be managed centrally. It may therefore be easier for individual members to separate their pensions from those of other employees, and to move on if they want to.

HM Revenue & Customs (HMRC) offers the Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. It is compulsory to file some forms and returns online including applications to register a pension scheme, registered pension scheme returns, accounting for tax returns, and notification of winding up a registered pension scheme.

Stakeholder pensions work in the same way as personal pension arrangements and are normally accessed through an employer, although they can also be bought directly from the pension provider.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

If you had employees in a stakeholder pension scheme before 1 October 2012, you must carry on taking workers' contributions from their pay and send them to the scheme if the worker wants you to.

Read Pensions Regulator guidance on stakeholder pensions.

Read nidirect guidance on stakeholder pensions for individuals.

A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions

Personal pensions usually offer a wide choice of funds in which to invest. The two basic options are:

With-profit

Contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

Unit-linked

These funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflects market performance more accurately than with-profits funds.

Administration costs

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension providers, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice.

If you arrange for a pension provider to set up a GPP, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.

There are a variety of pension schemes that can be registered with HM Revenue & Customs (HMRC) designed specifically for directors and owners, although they can also be set up for the benefit of other employees.

The changes in the tax rules for pension schemes have given employers and pension providers greater flexibility in the design of pension schemes. Here are some examples of registered pension schemes that may be available for directors and owners, although some can also be set up for the benefit of other employees.

Executive pension plans (EPPs)

Insurance companies tailor these defined contribution occupational schemes to the individual. The employer must make contributions, and the employee can too. Rules on tax relief, contribution limits, and tax-free lump sums are the same as for other registered pension schemes.

Following the simplification of the tax regime the relative advantage of EPPs - that they allowed a fast build-up of entitlement over 20 years rather than 40 - has to some extent been undermined.

For information on different types of occupational pensions, see how to know your legal obligations on pensions.

Self-administered schemes (SASs) (also known as Investment Regulated Schemes or occupational pension schemes)

These are registered pension schemes and are generally set up for directors/owners of companies. They allow a small group of trustees appointed by your company to choose how to invest the funds. The scheme administrator, together with the trustees, is responsible for ensuring that the scheme remains within HMRC rules.

The main advantage is that an SAS can be very flexible in terms of investment choice as it isn't limited to stocks and shares or insurance funds. Its investments include commercial buildings (for example, the building used by the employer), loans to the employer, and the purchase of unquoted company shares.

Self-invested personal pension plans (SIPPs) (also known as Investment Regulated Schemes)

These allow you to select your own pension fund investments. They operate on a similar basis to insured personal pensions with access to collective funds, except that HMRC also allows direct investment in UK and overseas quoted securities as well as commercial property.

Tax rules governing all these pension plans have been simplified. However, you may want to consult a professional adviser before making a decision. Find a local qualified adviser.

HMRC offers a Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. Some forms must be filed online using this service.

There are a variety of unregistered pension options available to directors and owners, but they don't benefit from all the tax advantages of a pension scheme registered with HM Revenue & Customs (HMRC). These are specialist areas and you should obtain advice before setting up one of these types of schemes.

Employer-financed retirement benefit schemes (EFRBS)

EFRBS (formerly known as Funded Unapproved Retirement Benefit Schemes and Unfunded Unapproved Retirement Benefit Schemes) are targeted at owner-managers. They are unregistered pension arrangements set up as a top-up scheme, supplementing an HMRC-registered scheme. Following the simplification of the tax regime, many of the advantages of these schemes no longer exist.

In an EFRBS, employer contributions:

• are not liable for tax or National Insurance contributions as they are made
• are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

• subject to income tax (there is no entitlement to a tax-free lump sum)
• not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
• subject to inheritance tax

Reform of the tax rules governing pensions has affected the relative attractions of unregistered pension arrangements, so you might want to consult a professional adviser before making a decision to invest.

Before choosing an occupational pension scheme you first need to weigh up the differences between the pension options available to you and your business.

A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme that best suits your business. Find a local qualified adviser.

Occupational pensions

Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for paying benefits to employees. There are two types of occupational pension schemes - defined benefit (also known as salary-related) and defined contribution (also known as money purchase). 

Defined benefit pensions

Defined benefit pensions provide guaranteed pension sums when the pension matures. They too are made up of contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit. Defined benefit pensions are now mostly offered by large companies and the public sector.

Defined contribution pensions

Defined contribution pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer's liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.

Group personal pensions

A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.

Stakeholder pensions

Stakeholder pensions must meet minimum standards which ensure they are flexible and portable with capped management charges.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

The laws and regulations governing pension schemes are less complex than they were following tax simplification, but deciding which type of scheme would suit your business can be tricky. There are many organisations that can provide you with further help and advice with workplace pensions.

Pension advisory organisations

MoneyHelper provides free information and advice on pensions. You can also call them on Tel 0800 011 3797.

You can find a local qualified adviser that can help you decide what you want from a pension scheme, inform you of the costs, tax breaks, and good and bad points of each type, and give you some pointers on coping with the tax regime. You may find it helpful to find an adviser with experience in advising businesses operating in your sector. Industry contacts might be able to recommend one.

Employees may also need information on saving for retirement, so you may wish to consider offering access to pensions advice as an employee benefit. This can be done without incurring a tax charge providing the advice or information made available is offered to all employees and costs you less than £500 per employee per year. It will allow advice not only on pensions but also on the general financial and tax issues relating to pensions.

The Pensions Regulator has advice regarding automatic enrolment for employers. You can also contact the Workplace Pension Information Line on Tel 0845 600 1268.

When you choose a pension scheme, you need to consider key issues such as:

• The level of funding you as an employer are prepared to give.
• What income do you want your pension to deliver to your employees.
• The extent to which you will have to consult with employees about changes to the scheme(s) you offer.
• Whether you want to be able to change your pension scheme easily. Generally, you will not be able to do this retrospectively, so it's important to try to get it right the first time.
• Whether there are areas in which you would like/not like your pension scheme to invest, for example in ethical investments.
• The charges, costs, and penalties.
• The reputation of the pension provider, but remember that past performance is no indication of future returns.
• What happens to the pension benefits if a member dies.
• Whether your scheme will comply with changes such as automatic enrolment into workplace pensions. Read more on automatic enrolment into a workplace pension.

Pensions advice

If you are unfamiliar with the legislation and tax regulations that govern pension schemes, you may find it useful to consult an independent financial adviser or pension adviser before you make a decision.

You can obtain free information, guidance, and advice about pensions from MoneyHelper.

Alternatively, you can find a local qualified adviser dealing in retirement pensions and annuities.

Review and monitor pensions

Your situation, and that of your employees, will change all the time. It is a good idea to review their pension needs regularly and monitor the fund to make sure it is giving good returns.

If you have any complaints about how the overall pension scheme is run, your first point of contact will vary depending on the type of scheme you have. If the scheme is defined benefit or defined contribution, you should contact the trustees, or if you have concerns about the trustees, speak to the Pensions Regulator. If the scheme is contract-based, you should contact the provider, or get in touch with the Pensions Regulator if you have concerns about the provider. Read Pensions Regulator advice for employers. The Pensions Ombudsman is the final arbiter of any problems.

Employers who run into problems with salary-related schemes should seek professional or legal advice. Choose a solicitor for your business.

All employers must provide workers with a qualifying workplace pension. This is called automatic enrolment.

Read more about automatic enrolment into a workplace pension.

Pensions and tax relief

There are other benefits to providing an occupational pension scheme. For pension schemes registered with HM Revenue & Customs (HMRC), extensive tax relief is available:

• employees' contributions attract income tax relief
• employer's contributions qualify for corporation tax relief (where the employer is a corporation). If the employer is unincorporated (for example partnerships) they may be subject to income tax relief
• scheme investments qualify for income tax and capital gains tax relief

This makes pensions a tax-efficient way of increasing employee benefits and remuneration.

Annual allowance

The pensions tax regime has been simplified to remove the various limits on what could be paid by or on behalf of an individual into different types of tax-privileged pension schemes. Now up to 100% of earned income can be contributed to a registered pension scheme with the benefit of tax relief. However, there is an overall ceiling for each individual on the annual amount of pension savings that can benefit from tax relief. This limit is called the annual allowance and is £60,000 for 2024-25.

Lifetime allowance

The lifetime allowance was abolished with effect from 6 April 2024.

Apart from the annual allowance, there are no tax rules on how quickly entitlement can be built up in a tax-privileged pension scheme, but individual pension schemes may set their own limits.

An occupational pension scheme is normally set up by an employer (known as the sponsoring employer) to provide a pension for employees. But since 6 April 2006 it has been possible, provided the pension scheme rules allow, for employees with other employers to be covered by the scheme, including anyone who does not work for the employer.

There are two main types of occupational pension scheme - defined benefit and defined contribution.

Defined benefit pension schemes

In defined benefit schemes (also known as salary-related schemes), the size of the pension depends on the final salary of the employee and the number of years that contributions have been made. Contributions are held in trust and are pooled to provide an investment fund, which is then deployed to achieve additional growth in value.

If the scheme is running a deficit, the employer is responsible for finding the money to bridge the gap, therefore it is necessary for the employer to ensure that their contributions are sufficient to make up any deficit.

If the scheme is in surplus the trustees may decide to use it to improve the benefits to members or the employer may decide to take a 'contributions holiday' by ceasing to pay into the fund. Under certain circumstances, the surplus may be returned to the employer. However, in the current economic climate, surpluses are not common.

The Pensions Regulator was established, following a series of reviews by the government, with a view to protecting members of work-related pension schemes. Read about the Pensions Regulator's approach to regulating workplace pensions.

The Pension Protection Fund (PPF) was established to provide compensation to members of eligible pension schemes when employers become insolvent, leaving pension schemes with insufficient assets to pay employees their pension entitlement.

Defined contribution pension schemes

In defined contribution schemes (also known as money purchase schemes), the size of the pension depends on the value of the investment fund. If the investment fund does well, the employee gets a higher pension. If it does badly, the employee will receive less than they might have anticipated. In most defined contribution schemes, funds are held in the name of each individual member, although they may be managed centrally. It may therefore be easier for individual members to separate their pensions from those of other employees, and to move on if they want to.

HM Revenue & Customs (HMRC) offers the Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. It is compulsory to file some forms and returns online including applications to register a pension scheme, registered pension scheme returns, accounting for tax returns, and notification of winding up a registered pension scheme.

Stakeholder pensions work in the same way as personal pension arrangements and are normally accessed through an employer, although they can also be bought directly from the pension provider.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

If you had employees in a stakeholder pension scheme before 1 October 2012, you must carry on taking workers' contributions from their pay and send them to the scheme if the worker wants you to.

Read Pensions Regulator guidance on stakeholder pensions.

Read nidirect guidance on stakeholder pensions for individuals.

A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions

Personal pensions usually offer a wide choice of funds in which to invest. The two basic options are:

With-profit

Contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

Unit-linked

These funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflects market performance more accurately than with-profits funds.

Administration costs

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension providers, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice.

If you arrange for a pension provider to set up a GPP, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.

There are a variety of pension schemes that can be registered with HM Revenue & Customs (HMRC) designed specifically for directors and owners, although they can also be set up for the benefit of other employees.

The changes in the tax rules for pension schemes have given employers and pension providers greater flexibility in the design of pension schemes. Here are some examples of registered pension schemes that may be available for directors and owners, although some can also be set up for the benefit of other employees.

Executive pension plans (EPPs)

Insurance companies tailor these defined contribution occupational schemes to the individual. The employer must make contributions, and the employee can too. Rules on tax relief, contribution limits, and tax-free lump sums are the same as for other registered pension schemes.

Following the simplification of the tax regime the relative advantage of EPPs - that they allowed a fast build-up of entitlement over 20 years rather than 40 - has to some extent been undermined.

For information on different types of occupational pensions, see how to know your legal obligations on pensions.

Self-administered schemes (SASs) (also known as Investment Regulated Schemes or occupational pension schemes)

These are registered pension schemes and are generally set up for directors/owners of companies. They allow a small group of trustees appointed by your company to choose how to invest the funds. The scheme administrator, together with the trustees, is responsible for ensuring that the scheme remains within HMRC rules.

The main advantage is that an SAS can be very flexible in terms of investment choice as it isn't limited to stocks and shares or insurance funds. Its investments include commercial buildings (for example, the building used by the employer), loans to the employer, and the purchase of unquoted company shares.

Self-invested personal pension plans (SIPPs) (also known as Investment Regulated Schemes)

These allow you to select your own pension fund investments. They operate on a similar basis to insured personal pensions with access to collective funds, except that HMRC also allows direct investment in UK and overseas quoted securities as well as commercial property.

Tax rules governing all these pension plans have been simplified. However, you may want to consult a professional adviser before making a decision. Find a local qualified adviser.

HMRC offers a Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. Some forms must be filed online using this service.

There are a variety of unregistered pension options available to directors and owners, but they don't benefit from all the tax advantages of a pension scheme registered with HM Revenue & Customs (HMRC). These are specialist areas and you should obtain advice before setting up one of these types of schemes.

Employer-financed retirement benefit schemes (EFRBS)

EFRBS (formerly known as Funded Unapproved Retirement Benefit Schemes and Unfunded Unapproved Retirement Benefit Schemes) are targeted at owner-managers. They are unregistered pension arrangements set up as a top-up scheme, supplementing an HMRC-registered scheme. Following the simplification of the tax regime, many of the advantages of these schemes no longer exist.

In an EFRBS, employer contributions:

• are not liable for tax or National Insurance contributions as they are made
• are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

• subject to income tax (there is no entitlement to a tax-free lump sum)
• not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
• subject to inheritance tax

Reform of the tax rules governing pensions has affected the relative attractions of unregistered pension arrangements, so you might want to consult a professional adviser before making a decision to invest.

Before choosing an occupational pension scheme you first need to weigh up the differences between the pension options available to you and your business.

A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme that best suits your business. Find a local qualified adviser.

Occupational pensions

Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for paying benefits to employees. There are two types of occupational pension schemes - defined benefit (also known as salary-related) and defined contribution (also known as money purchase). 

Defined benefit pensions

Defined benefit pensions provide guaranteed pension sums when the pension matures. They too are made up of contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit. Defined benefit pensions are now mostly offered by large companies and the public sector.

Defined contribution pensions

Defined contribution pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer's liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.

Group personal pensions

A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.

Stakeholder pensions

Stakeholder pensions must meet minimum standards which ensure they are flexible and portable with capped management charges.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

The laws and regulations governing pension schemes are less complex than they were following tax simplification, but deciding which type of scheme would suit your business can be tricky. There are many organisations that can provide you with further help and advice with workplace pensions.

Pension advisory organisations

MoneyHelper provides free information and advice on pensions. You can also call them on Tel 0800 011 3797.

You can find a local qualified adviser that can help you decide what you want from a pension scheme, inform you of the costs, tax breaks, and good and bad points of each type, and give you some pointers on coping with the tax regime. You may find it helpful to find an adviser with experience in advising businesses operating in your sector. Industry contacts might be able to recommend one.

Employees may also need information on saving for retirement, so you may wish to consider offering access to pensions advice as an employee benefit. This can be done without incurring a tax charge providing the advice or information made available is offered to all employees and costs you less than £500 per employee per year. It will allow advice not only on pensions but also on the general financial and tax issues relating to pensions.

The Pensions Regulator has advice regarding automatic enrolment for employers. You can also contact the Workplace Pension Information Line on Tel 0845 600 1268.

When you choose a pension scheme, you need to consider key issues such as:

• The level of funding you as an employer are prepared to give.
• What income do you want your pension to deliver to your employees.
• The extent to which you will have to consult with employees about changes to the scheme(s) you offer.
• Whether you want to be able to change your pension scheme easily. Generally, you will not be able to do this retrospectively, so it's important to try to get it right the first time.
• Whether there are areas in which you would like/not like your pension scheme to invest, for example in ethical investments.
• The charges, costs, and penalties.
• The reputation of the pension provider, but remember that past performance is no indication of future returns.
• What happens to the pension benefits if a member dies.
• Whether your scheme will comply with changes such as automatic enrolment into workplace pensions. Read more on automatic enrolment into a workplace pension.

Pensions advice

If you are unfamiliar with the legislation and tax regulations that govern pension schemes, you may find it useful to consult an independent financial adviser or pension adviser before you make a decision.

You can obtain free information, guidance, and advice about pensions from MoneyHelper.

Alternatively, you can find a local qualified adviser dealing in retirement pensions and annuities.

Review and monitor pensions

Your situation, and that of your employees, will change all the time. It is a good idea to review their pension needs regularly and monitor the fund to make sure it is giving good returns.

If you have any complaints about how the overall pension scheme is run, your first point of contact will vary depending on the type of scheme you have. If the scheme is defined benefit or defined contribution, you should contact the trustees, or if you have concerns about the trustees, speak to the Pensions Regulator. If the scheme is contract-based, you should contact the provider, or get in touch with the Pensions Regulator if you have concerns about the provider. Read Pensions Regulator advice for employers. The Pensions Ombudsman is the final arbiter of any problems.

Employers who run into problems with salary-related schemes should seek professional or legal advice. Choose a solicitor for your business.

All employers must provide workers with a qualifying workplace pension. This is called automatic enrolment.

Read more about automatic enrolment into a workplace pension.

Pensions and tax relief

There are other benefits to providing an occupational pension scheme. For pension schemes registered with HM Revenue & Customs (HMRC), extensive tax relief is available:

• employees' contributions attract income tax relief
• employer's contributions qualify for corporation tax relief (where the employer is a corporation). If the employer is unincorporated (for example partnerships) they may be subject to income tax relief
• scheme investments qualify for income tax and capital gains tax relief

This makes pensions a tax-efficient way of increasing employee benefits and remuneration.

Annual allowance

The pensions tax regime has been simplified to remove the various limits on what could be paid by or on behalf of an individual into different types of tax-privileged pension schemes. Now up to 100% of earned income can be contributed to a registered pension scheme with the benefit of tax relief. However, there is an overall ceiling for each individual on the annual amount of pension savings that can benefit from tax relief. This limit is called the annual allowance and is £60,000 for 2024-25.

Lifetime allowance

The lifetime allowance was abolished with effect from 6 April 2024.

Apart from the annual allowance, there are no tax rules on how quickly entitlement can be built up in a tax-privileged pension scheme, but individual pension schemes may set their own limits.

An occupational pension scheme is normally set up by an employer (known as the sponsoring employer) to provide a pension for employees. But since 6 April 2006 it has been possible, provided the pension scheme rules allow, for employees with other employers to be covered by the scheme, including anyone who does not work for the employer.

There are two main types of occupational pension scheme - defined benefit and defined contribution.

Defined benefit pension schemes

In defined benefit schemes (also known as salary-related schemes), the size of the pension depends on the final salary of the employee and the number of years that contributions have been made. Contributions are held in trust and are pooled to provide an investment fund, which is then deployed to achieve additional growth in value.

If the scheme is running a deficit, the employer is responsible for finding the money to bridge the gap, therefore it is necessary for the employer to ensure that their contributions are sufficient to make up any deficit.

If the scheme is in surplus the trustees may decide to use it to improve the benefits to members or the employer may decide to take a 'contributions holiday' by ceasing to pay into the fund. Under certain circumstances, the surplus may be returned to the employer. However, in the current economic climate, surpluses are not common.

The Pensions Regulator was established, following a series of reviews by the government, with a view to protecting members of work-related pension schemes. Read about the Pensions Regulator's approach to regulating workplace pensions.

The Pension Protection Fund (PPF) was established to provide compensation to members of eligible pension schemes when employers become insolvent, leaving pension schemes with insufficient assets to pay employees their pension entitlement.

Defined contribution pension schemes

In defined contribution schemes (also known as money purchase schemes), the size of the pension depends on the value of the investment fund. If the investment fund does well, the employee gets a higher pension. If it does badly, the employee will receive less than they might have anticipated. In most defined contribution schemes, funds are held in the name of each individual member, although they may be managed centrally. It may therefore be easier for individual members to separate their pensions from those of other employees, and to move on if they want to.

HM Revenue & Customs (HMRC) offers the Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. It is compulsory to file some forms and returns online including applications to register a pension scheme, registered pension scheme returns, accounting for tax returns, and notification of winding up a registered pension scheme.

Stakeholder pensions work in the same way as personal pension arrangements and are normally accessed through an employer, although they can also be bought directly from the pension provider.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

If you had employees in a stakeholder pension scheme before 1 October 2012, you must carry on taking workers' contributions from their pay and send them to the scheme if the worker wants you to.

Read Pensions Regulator guidance on stakeholder pensions.

Read nidirect guidance on stakeholder pensions for individuals.

A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions

Personal pensions usually offer a wide choice of funds in which to invest. The two basic options are:

With-profit

Contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

Unit-linked

These funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflects market performance more accurately than with-profits funds.

Administration costs

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension providers, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice.

If you arrange for a pension provider to set up a GPP, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.

There are a variety of pension schemes that can be registered with HM Revenue & Customs (HMRC) designed specifically for directors and owners, although they can also be set up for the benefit of other employees.

The changes in the tax rules for pension schemes have given employers and pension providers greater flexibility in the design of pension schemes. Here are some examples of registered pension schemes that may be available for directors and owners, although some can also be set up for the benefit of other employees.

Executive pension plans (EPPs)

Insurance companies tailor these defined contribution occupational schemes to the individual. The employer must make contributions, and the employee can too. Rules on tax relief, contribution limits, and tax-free lump sums are the same as for other registered pension schemes.

Following the simplification of the tax regime the relative advantage of EPPs - that they allowed a fast build-up of entitlement over 20 years rather than 40 - has to some extent been undermined.

For information on different types of occupational pensions, see how to know your legal obligations on pensions.

Self-administered schemes (SASs) (also known as Investment Regulated Schemes or occupational pension schemes)

These are registered pension schemes and are generally set up for directors/owners of companies. They allow a small group of trustees appointed by your company to choose how to invest the funds. The scheme administrator, together with the trustees, is responsible for ensuring that the scheme remains within HMRC rules.

The main advantage is that an SAS can be very flexible in terms of investment choice as it isn't limited to stocks and shares or insurance funds. Its investments include commercial buildings (for example, the building used by the employer), loans to the employer, and the purchase of unquoted company shares.

Self-invested personal pension plans (SIPPs) (also known as Investment Regulated Schemes)

These allow you to select your own pension fund investments. They operate on a similar basis to insured personal pensions with access to collective funds, except that HMRC also allows direct investment in UK and overseas quoted securities as well as commercial property.

Tax rules governing all these pension plans have been simplified. However, you may want to consult a professional adviser before making a decision. Find a local qualified adviser.

HMRC offers a Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. Some forms must be filed online using this service.

There are a variety of unregistered pension options available to directors and owners, but they don't benefit from all the tax advantages of a pension scheme registered with HM Revenue & Customs (HMRC). These are specialist areas and you should obtain advice before setting up one of these types of schemes.

Employer-financed retirement benefit schemes (EFRBS)

EFRBS (formerly known as Funded Unapproved Retirement Benefit Schemes and Unfunded Unapproved Retirement Benefit Schemes) are targeted at owner-managers. They are unregistered pension arrangements set up as a top-up scheme, supplementing an HMRC-registered scheme. Following the simplification of the tax regime, many of the advantages of these schemes no longer exist.

In an EFRBS, employer contributions:

• are not liable for tax or National Insurance contributions as they are made
• are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

• subject to income tax (there is no entitlement to a tax-free lump sum)
• not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
• subject to inheritance tax

Reform of the tax rules governing pensions has affected the relative attractions of unregistered pension arrangements, so you might want to consult a professional adviser before making a decision to invest.

Before choosing an occupational pension scheme you first need to weigh up the differences between the pension options available to you and your business.

A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme that best suits your business. Find a local qualified adviser.

Occupational pensions

Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for paying benefits to employees. There are two types of occupational pension schemes - defined benefit (also known as salary-related) and defined contribution (also known as money purchase). 

Defined benefit pensions

Defined benefit pensions provide guaranteed pension sums when the pension matures. They too are made up of contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit. Defined benefit pensions are now mostly offered by large companies and the public sector.

Defined contribution pensions

Defined contribution pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer's liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.

Group personal pensions

A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.

Stakeholder pensions

Stakeholder pensions must meet minimum standards which ensure they are flexible and portable with capped management charges.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

The laws and regulations governing pension schemes are less complex than they were following tax simplification, but deciding which type of scheme would suit your business can be tricky. There are many organisations that can provide you with further help and advice with workplace pensions.

Pension advisory organisations

MoneyHelper provides free information and advice on pensions. You can also call them on Tel 0800 011 3797.

You can find a local qualified adviser that can help you decide what you want from a pension scheme, inform you of the costs, tax breaks, and good and bad points of each type, and give you some pointers on coping with the tax regime. You may find it helpful to find an adviser with experience in advising businesses operating in your sector. Industry contacts might be able to recommend one.

Employees may also need information on saving for retirement, so you may wish to consider offering access to pensions advice as an employee benefit. This can be done without incurring a tax charge providing the advice or information made available is offered to all employees and costs you less than £500 per employee per year. It will allow advice not only on pensions but also on the general financial and tax issues relating to pensions.

The Pensions Regulator has advice regarding automatic enrolment for employers. You can also contact the Workplace Pension Information Line on Tel 0845 600 1268.

When you choose a pension scheme, you need to consider key issues such as:

• The level of funding you as an employer are prepared to give.
• What income do you want your pension to deliver to your employees.
• The extent to which you will have to consult with employees about changes to the scheme(s) you offer.
• Whether you want to be able to change your pension scheme easily. Generally, you will not be able to do this retrospectively, so it's important to try to get it right the first time.
• Whether there are areas in which you would like/not like your pension scheme to invest, for example in ethical investments.
• The charges, costs, and penalties.
• The reputation of the pension provider, but remember that past performance is no indication of future returns.
• What happens to the pension benefits if a member dies.
• Whether your scheme will comply with changes such as automatic enrolment into workplace pensions. Read more on automatic enrolment into a workplace pension.

Pensions advice

If you are unfamiliar with the legislation and tax regulations that govern pension schemes, you may find it useful to consult an independent financial adviser or pension adviser before you make a decision.

You can obtain free information, guidance, and advice about pensions from MoneyHelper.

Alternatively, you can find a local qualified adviser dealing in retirement pensions and annuities.

Review and monitor pensions

Your situation, and that of your employees, will change all the time. It is a good idea to review their pension needs regularly and monitor the fund to make sure it is giving good returns.

If you have any complaints about how the overall pension scheme is run, your first point of contact will vary depending on the type of scheme you have. If the scheme is defined benefit or defined contribution, you should contact the trustees, or if you have concerns about the trustees, speak to the Pensions Regulator. If the scheme is contract-based, you should contact the provider, or get in touch with the Pensions Regulator if you have concerns about the provider. Read Pensions Regulator advice for employers. The Pensions Ombudsman is the final arbiter of any problems.

Employers who run into problems with salary-related schemes should seek professional or legal advice. Choose a solicitor for your business.

All employers must provide workers with a qualifying workplace pension. This is called automatic enrolment.

Read more about automatic enrolment into a workplace pension.

Pensions and tax relief

There are other benefits to providing an occupational pension scheme. For pension schemes registered with HM Revenue & Customs (HMRC), extensive tax relief is available:

• employees' contributions attract income tax relief
• employer's contributions qualify for corporation tax relief (where the employer is a corporation). If the employer is unincorporated (for example partnerships) they may be subject to income tax relief
• scheme investments qualify for income tax and capital gains tax relief

This makes pensions a tax-efficient way of increasing employee benefits and remuneration.

Annual allowance

The pensions tax regime has been simplified to remove the various limits on what could be paid by or on behalf of an individual into different types of tax-privileged pension schemes. Now up to 100% of earned income can be contributed to a registered pension scheme with the benefit of tax relief. However, there is an overall ceiling for each individual on the annual amount of pension savings that can benefit from tax relief. This limit is called the annual allowance and is £60,000 for 2024-25.

Lifetime allowance

The lifetime allowance was abolished with effect from 6 April 2024.

Apart from the annual allowance, there are no tax rules on how quickly entitlement can be built up in a tax-privileged pension scheme, but individual pension schemes may set their own limits.

An occupational pension scheme is normally set up by an employer (known as the sponsoring employer) to provide a pension for employees. But since 6 April 2006 it has been possible, provided the pension scheme rules allow, for employees with other employers to be covered by the scheme, including anyone who does not work for the employer.

There are two main types of occupational pension scheme - defined benefit and defined contribution.

Defined benefit pension schemes

In defined benefit schemes (also known as salary-related schemes), the size of the pension depends on the final salary of the employee and the number of years that contributions have been made. Contributions are held in trust and are pooled to provide an investment fund, which is then deployed to achieve additional growth in value.

If the scheme is running a deficit, the employer is responsible for finding the money to bridge the gap, therefore it is necessary for the employer to ensure that their contributions are sufficient to make up any deficit.

If the scheme is in surplus the trustees may decide to use it to improve the benefits to members or the employer may decide to take a 'contributions holiday' by ceasing to pay into the fund. Under certain circumstances, the surplus may be returned to the employer. However, in the current economic climate, surpluses are not common.

The Pensions Regulator was established, following a series of reviews by the government, with a view to protecting members of work-related pension schemes. Read about the Pensions Regulator's approach to regulating workplace pensions.

The Pension Protection Fund (PPF) was established to provide compensation to members of eligible pension schemes when employers become insolvent, leaving pension schemes with insufficient assets to pay employees their pension entitlement.

Defined contribution pension schemes

In defined contribution schemes (also known as money purchase schemes), the size of the pension depends on the value of the investment fund. If the investment fund does well, the employee gets a higher pension. If it does badly, the employee will receive less than they might have anticipated. In most defined contribution schemes, funds are held in the name of each individual member, although they may be managed centrally. It may therefore be easier for individual members to separate their pensions from those of other employees, and to move on if they want to.

HM Revenue & Customs (HMRC) offers the Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. It is compulsory to file some forms and returns online including applications to register a pension scheme, registered pension scheme returns, accounting for tax returns, and notification of winding up a registered pension scheme.

Stakeholder pensions work in the same way as personal pension arrangements and are normally accessed through an employer, although they can also be bought directly from the pension provider.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

If you had employees in a stakeholder pension scheme before 1 October 2012, you must carry on taking workers' contributions from their pay and send them to the scheme if the worker wants you to.

Read Pensions Regulator guidance on stakeholder pensions.

Read nidirect guidance on stakeholder pensions for individuals.

A group personal pension (GPP) plan is a registered pension scheme. It is a collection of individual personal plans grouped together by the pension provider.

Personal pensions

Personal pensions usually offer a wide choice of funds in which to invest. The two basic options are:

With-profit

Contributions are invested in equities and gilt-edged securities. The value of the fund grows as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a bad year. A terminal bonus may also be added to the fund.

Unit-linked

These funds cover a wide range of investments. Contributions buy units in the chosen funds, which then increase or decrease according to the performance of their investments. The value of these investments reflects market performance more accurately than with-profits funds.

Administration costs

Pension providers pass on administration costs through pension plan charges, which are deducted from the employee's fund. Costs can vary considerably and there can be penalties for switching pension providers, so research these carefully before making a decision. Plans that let you pay lump sums and change your premium may give you the greatest flexibility. It may be helpful to get professional advice.

If you arrange for a pension provider to set up a GPP, your employees can expect lower fees than those for individual personal plans, meaning more of their savings go towards their pension.

Personal pension plans are an option for employees who change jobs frequently, as they will be able to continue contributing when they change jobs. However, any special terms the employer has arranged for employees, such as lower costs or life insurance, will probably stop when the employee ceases to work for that employer. Also, personal pension schemes sometimes have high transfer penalties.

There are a variety of pension schemes that can be registered with HM Revenue & Customs (HMRC) designed specifically for directors and owners, although they can also be set up for the benefit of other employees.

The changes in the tax rules for pension schemes have given employers and pension providers greater flexibility in the design of pension schemes. Here are some examples of registered pension schemes that may be available for directors and owners, although some can also be set up for the benefit of other employees.

Executive pension plans (EPPs)

Insurance companies tailor these defined contribution occupational schemes to the individual. The employer must make contributions, and the employee can too. Rules on tax relief, contribution limits, and tax-free lump sums are the same as for other registered pension schemes.

Following the simplification of the tax regime the relative advantage of EPPs - that they allowed a fast build-up of entitlement over 20 years rather than 40 - has to some extent been undermined.

For information on different types of occupational pensions, see how to know your legal obligations on pensions.

Self-administered schemes (SASs) (also known as Investment Regulated Schemes or occupational pension schemes)

These are registered pension schemes and are generally set up for directors/owners of companies. They allow a small group of trustees appointed by your company to choose how to invest the funds. The scheme administrator, together with the trustees, is responsible for ensuring that the scheme remains within HMRC rules.

The main advantage is that an SAS can be very flexible in terms of investment choice as it isn't limited to stocks and shares or insurance funds. Its investments include commercial buildings (for example, the building used by the employer), loans to the employer, and the purchase of unquoted company shares.

Self-invested personal pension plans (SIPPs) (also known as Investment Regulated Schemes)

These allow you to select your own pension fund investments. They operate on a similar basis to insured personal pensions with access to collective funds, except that HMRC also allows direct investment in UK and overseas quoted securities as well as commercial property.

Tax rules governing all these pension plans have been simplified. However, you may want to consult a professional adviser before making a decision. Find a local qualified adviser.

HMRC offers a Pension Schemes Online service - a secure method for businesses to register pension schemes and complete a number of forms and returns online. Some forms must be filed online using this service.

There are a variety of unregistered pension options available to directors and owners, but they don't benefit from all the tax advantages of a pension scheme registered with HM Revenue & Customs (HMRC). These are specialist areas and you should obtain advice before setting up one of these types of schemes.

Employer-financed retirement benefit schemes (EFRBS)

EFRBS (formerly known as Funded Unapproved Retirement Benefit Schemes and Unfunded Unapproved Retirement Benefit Schemes) are targeted at owner-managers. They are unregistered pension arrangements set up as a top-up scheme, supplementing an HMRC-registered scheme. Following the simplification of the tax regime, many of the advantages of these schemes no longer exist.

In an EFRBS, employer contributions:

• are not liable for tax or National Insurance contributions as they are made
• are not deductible in the employer's accounts until benefits start to be paid to the employee

Non-registered schemes may also be liable to income tax and capital gains tax at the rate applicable to trusts.

The benefits paid by such schemes are:

• subject to income tax (there is no entitlement to a tax-free lump sum)
• not subject to National Insurance contributions, if the benefits paid are consistent with general benefit rules for benefit schemes
• subject to inheritance tax

Reform of the tax rules governing pensions has affected the relative attractions of unregistered pension arrangements, so you might want to consult a professional adviser before making a decision to invest.

Before choosing an occupational pension scheme you first need to weigh up the differences between the pension options available to you and your business.

A professional pension adviser may be able to help you make your decision. They can tell you about the costs and tax breaks and help you find a scheme that best suits your business. Find a local qualified adviser.

Occupational pensions

Occupational pension schemes are set up by the employer but are run by a board of trustees who hold responsibility for paying benefits to employees. There are two types of occupational pension schemes - defined benefit (also known as salary-related) and defined contribution (also known as money purchase). 

Defined benefit pensions

Defined benefit pensions provide guaranteed pension sums when the pension matures. They too are made up of contributions and investment returns, but when the investments do not provide sufficient funds the employer is responsible for making up the deficit. Defined benefit pensions are now mostly offered by large companies and the public sector.

Defined contribution pensions

Defined contribution pensions are made up of employer contributions and investment returns. The size of the eventual pension payable under these schemes is not guaranteed from the outset. The employer's liability is limited to the contributions they make on behalf of each participating employee. If the investment returns are insufficient, the employer is not responsible for making up the deficit.

Group personal pensions

A group personal pension scheme is a collection of individual personal pension plans grouped together and run by the pension provider. This type of pension arrangement offers scope for you to tailor a scheme to meet your needs and those of your employees. Stakeholder pensions can also be grouped in this way.

Stakeholder pensions

Stakeholder pensions must meet minimum standards which ensure they are flexible and portable with capped management charges.

The rules for stakeholder pensions changed on 1 October 2012. Employers are no longer required to designate a stakeholder scheme for their employees. However, stakeholder pension schemes can be used by employers for automatic enrolment purposes provided the scheme meets the necessary criteria.

The laws and regulations governing pension schemes are less complex than they were following tax simplification, but deciding which type of scheme would suit your business can be tricky. There are many organisations that can provide you with further help and advice with workplace pensions.

Pension advisory organisations

MoneyHelper provides free information and advice on pensions. You can also call them on Tel 0800 011 3797.

You can find a local qualified adviser that can help you decide what you want from a pension scheme, inform you of the costs, tax breaks, and good and bad points of each type, and give you some pointers on coping with the tax regime. You may find it helpful to find an adviser with experience in advising businesses operating in your sector. Industry contacts might be able to recommend one.

Employees may also need information on saving for retirement, so you may wish to consider offering access to pensions advice as an employee benefit. This can be done without incurring a tax charge providing the advice or information made available is offered to all employees and costs you less than £500 per employee per year. It will allow advice not only on pensions but also on the general financial and tax issues relating to pensions.

The Pensions Regulator has advice regarding automatic enrolment for employers. You can also contact the Workplace Pension Information Line on Tel 0845 600 1268.

When you choose a pension scheme, you need to consider key issues such as:

• The level of funding you as an employer are prepared to give.
• What income do you want your pension to deliver to your employees.
• The extent to which you will have to consult with employees about changes to the scheme(s) you offer.
• Whether you want to be able to change your pension scheme easily. Generally, you will not be able to do this retrospectively, so it's important to try to get it right the first time.
• Whether there are areas in which you would like/not like your pension scheme to invest, for example in ethical investments.
• The charges, costs, and penalties.
• The reputation of the pension provider, but remember that past performance is no indication of future returns.
• What happens to the pension benefits if a member dies.
• Whether your scheme will comply with changes such as automatic enrolment into workplace pensions. Read more on automatic enrolment into a workplace pension.

Pensions advice

If you are unfamiliar with the legislation and tax regulations that govern pension schemes, you may find it useful to consult an independent financial adviser or pension adviser before you make a decision.

You can obtain free information, guidance, and advice about pensions from MoneyHelper.

Alternatively, you can find a local qualified adviser dealing in retirement pensions and annuities.

Review and monitor pensions

Your situation, and that of your employees, will change all the time. It is a good idea to review their pension needs regularly and monitor the fund to make sure it is giving good returns.

If you have any complaints about how the overall pension scheme is run, your first point of contact will vary depending on the type of scheme you have. If the scheme is defined benefit or defined contribution, you should contact the trustees, or if you have concerns about the trustees, speak to the Pensions Regulator. If the scheme is contract-based, you should contact the provider, or get in touch with the Pensions Regulator if you have concerns about the provider. Read Pensions Regulator advice for employers. The Pensions Ombudsman is the final arbiter of any problems.

Employers who run into problems with salary-related schemes should seek professional or legal advice. Choose a solicitor for your business.