Outsourced Payroll Specialists

What to do with a new employee’s past pension

Before a new employee starts in your company, you will need to make sure their pension scheme is set up successfully. Making sure the employee understands the pension plan your business offers is essential and can aid in helping them settle into the business. But if your employee has an existing workplace pension from a previous employer, they may enquire about what to do with the two of them.

Here is an overview of what you and your new employee can do with their past pension.

What is a pension?

Pensions are a type of savings scheme which helps you save money for later in your life. Pensions typically fall into two different groups, Defined Benefit schemes, and Defined Contribution schemes.

  • Defined Benefit pay is a retirement income based on salary and the time employee has worked for the company. This plan is more traditional.
  • Defined Contribution is a build up to a pension pot to provide the employee with a retirement income based on investments.

However, since the automatic enrolment laws, gradually all employers will have to offer a workplace pension. Automatic enrolment is available for employees who are:

  • Not currently in a workplace pension
  • 22 years old or over
  • State Pension age or younger
  • Earning over £10,000 a year
  • Working in the UK.

Even once you have set up the initial pension plan for your new employee, you will need to constantly update your employee files.
As of 6th April 2019, the Government will change their policy regarding employer minimum contribution. The employer minimum contribution will grow to 3% and staff contribution to grow to 5%.

Date effective Employer minimum contribution    Staff contribution  
Currently until 5th April 2019 2% 3%
6th April 2019 onwards 3% 5%


Employers should pay a minimum contribution towards this amount, to which employees must make up the difference.

Steps an employer must take

As an employer, you do not have to offer a choice of schemes to the employee and doing so is entirely at their discretion. The next step to take is to find out the details of the pension in their previous job. Even if their previous job was under a different type of scheme, new employees can still be enrolled into your plan.
Workplace pension will still belong to the employee if they change jobs, and the money saved in the previous job will remain invested and can be collected once they reach the age of retirement.

Combining pension pots & SIPP

Employees may consider combining pension pots. This can make it easier for annuity payments, which is when a fixed sum of money is paid annually.
Income drawdown can be cheaper to take from a large pot, rather than many small pots. However, employees must be aware that they may lose employer contributions if they transfer funds from a current workplace pension scheme.
Your employees can also enrol into a Self-Invested Personal Plan (SIPP). This allows them to move workplace funds into this account; however, this would end up splitting the pension payments which isn’t necessarily beneficial to the employee.
If your employee is unsure as to what to do with their pensions, it might be best that they speak to a financial advisor and receive independent advice.

Find a solution

Managing pension schemes can be difficult to run smoothly. Why not try outsourced payroll services to help with your employees’ pensions? Trace Payroll can offer professional assistance to make sure your employees’ pension is successfully set up and maintained.

Fill out a contact form or see below for more details for more information.

Get in touch

To find out more about fully managed payroll outsourcing with a personal touch, contact Trace Payroll Services today.

Call Trace Payroll Services on 0845 873 5619