Workplace pension schemes and personal services companies

Under the UK government’s pension reforms, almost every business (even those with a single employee) is now obliged to provide (by a specified date) a workplace pension scheme into which its workers and jobholders are automatically enrolled.

There are, however, certain exceptions to this, one of which may apply to some personal services companies.

A personal services company is best defined as a limited company that is owned and operated by a person or persons whose work it sells to others.

As the law stands, a personal services company (or, indeed, any limited company) that is comprised of a director and no other employees whatsoever is not obliged to provide a workplace pension for that director. There is, of course, nothing to stop the company from voluntarily providing a workplace pension.

However, if a personal services company has more than one employee (such as if, for example, it employs the director’s spouse as Company Secretary) then it is likely to be obliged to set up an employer pension scheme and automatically enrol all eligible employees into it by a specified date, known as the staging date.

Employees who are automatically enrolled in a workplace pension have the right to opt-out of it, but only after they have been automatically enrolled in it. In other words, the pension scheme must be set up and running even if every employee has indicated that they wish to opt out of it.

The decision to opt-out must made freely by the employee and must follow a set procedure which involves giving an ‘opt-out notice’ to the employer. Employers are not permitted to persuade employees to opt-out of workplace pension schemes – such action could result in fines being imposed by the Pensions Regulator.

The workplace pension legislation is complicated. Moreover, setting up and administering a pension scheme can be a costly exercise in terms of both time and money. It therefore makes sense to obtain professional advice in order to determine whether your business is in fact obliged to initiate a workplace pension scheme and, if so, how that can best and most economically achieved in compliance with the relevant legislation.


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