Pension Clauses in Employment Contracts

Pension clauses should clearly explain the employer's pension scheme and both parties' obligations.

Auto-Enrolment Requirements

All employers must:

• Assess employees' eligibility
• Automatically enrol eligible workers
• Make minimum contributions
• Re-enrol opt-outs every 3 years

Who Must Be Enrolled?

Category	Age	Earnings	Action Required
Eligible jobholder	22 to SPA	£10,000+ pa	Auto-enrol
Non-eligible jobholder	16-74	£6,240-£10,000	Enrol if requested
Entitled worker	16-74	Under £6,240	Enrol if requested

Basic Pension Clause

Minimum Compliance Clause

"The Company operates a workplace pension scheme in accordance with auto-enrolment legislation. Eligible employees will be automatically enrolled and contributions made in accordance with statutory minimum requirements. Details of the scheme are available from [HR/the pension provider]."

Enhanced Scheme Clause

"You will be enrolled in the Company pension scheme on [joining/completion of probation]. Contributions will be:

• Employer: [X]% of basic salary
• Employee: [Y]% of basic salary

You may increase your contributions up to the annual allowance limit."

Contribution Structures

Qualifying Earnings Basis

"Pension contributions are calculated on qualifying earnings between £6,240 and £50,270 per year (2024-25 thresholds). The Company contributes 3% and you contribute 5% of qualifying earnings."

Total Earnings Basis

"Pension contributions are calculated on your total earnings with no lower threshold:

• Employer: 4% of basic salary
• Employee: 4% of basic salary"

Matching Contributions

"The Company will match your contributions up to a maximum of 5% of basic salary:

• You contribute 3%: Company contributes 3%
• You contribute 4%: Company contributes 4%
• You contribute 5%+: Company contributes 5%"

Scheme Details

Type of Scheme

"The Company operates a [defined contribution/group personal pension/NEST] scheme administered by [provider name]."

Investment Options

"You may choose your investment strategy from the options available through the scheme. If no choice is made, your contributions will be invested in the default fund."

Waiting Periods

Deferment Clause

"You will be enrolled in the pension scheme following completion of [3 months service/probation period]. This deferment period does not apply to employees aged 22-SPA earning over £10,000, who will be enrolled within [3] months of starting."

Note: Deferment can be maximum 3 months for auto-enrolment eligible workers.

Opt-Out Rights

Opt-Out Clause

"You have the right to opt out of the pension scheme within one month of enrolment. If you opt out within this period, any contributions deducted will be refunded. Your opt-out will not affect future re-enrolment."

Re-Enrolment

"If you opt out, the Company will automatically re-enrol you approximately every 3 years, in accordance with statutory requirements. You may opt out again following re-enrolment."

Salary Sacrifice

Salary Sacrifice Clause

"The Company offers pension contributions through salary sacrifice. This arrangement allows you to exchange gross salary for pension contributions, potentially reducing your tax and National Insurance. Participation is optional and can be reviewed annually."

Considerations

• Reduces NI for both parties
• May affect other salary-linked benefits
• Must maintain National Minimum Wage
• Cannot reduce salary below NMW

Life Assurance and Death Benefits

Death in Service Clause

"The Company provides death in service benefit of [3/4] times your basic annual salary, paid to your nominated beneficiaries. This benefit requires you to be an active member of the pension scheme."

Nomination

"You should complete a nomination form to indicate who should receive any death benefits. The trustees/scheme administrators will consider your nomination but are not legally bound by it."

Enhanced Contributions

Seniority-Based

"Pension contributions increase with seniority:

• Grade A: 3% employer + 5% employee
• Grade B: 5% employer + 4% employee
• Grade C: 8% employer + 3% employee
• Directors: 10% employer + 2% employee"

Service-Based

"Employer contributions increase with service:

• Under 2 years: 3%
• 2-5 years: 5%
• 5-10 years: 7%
• 10+ years: 10%"

During Absence

Maternity/Paternity Leave

"Employer pension contributions continue during paid maternity, paternity, and adoption leave. Your contributions are based on actual pay received during this period."

Long-Term Sick Leave

"Employer contributions continue during company sick pay. When on SSP or nil pay, contributions may be reduced or suspended in accordance with scheme rules."

Leaving Employment

Preserved Benefits

"On leaving employment, your pension benefits remain in the scheme until retirement, unless you choose to transfer them to another pension arrangement."

Transfer Rights

"You have the right to transfer your pension to another registered pension scheme. Transfer values are calculated by the scheme administrator."