Workplace pensions for London SMEs: a practical guide
Grow London Local
Posted: Tue 17th Mar 2026
For London SMEs, workplace pensions are a legal duty that's easy to underestimate if nobody is clearly responsible for it.
Set up properly, pensions can run neatly alongside payroll with little ongoing admin.
This guide explains what you need to do, what it'll cost, how to choose a pension provider and how to think about pensions for yourself if you're self-employed or running your own company.
Understanding workplace pensions: the basics
A workplace pension is a long-term savings pot used to fund retirement.
Money goes into the pot while someone is working. It's invested. Later, the person can use it to give themselves an income.
For employees, contributions typically come from three places:
The employee (deducted from pay).
The employer (an extra cost for the business).
Tax relief from the government (usually added automatically, depending on the type of scheme).
A key phrase you hear is auto-enrolment. That's the UK system that requires employers to put eligible staff into a pension scheme and pay contributions.
Another phrase that matters is qualifying earnings. In many auto-enrolment schemes, contributions are calculated on a band of earnings rather than the whole salary.
For the 2026/2027 tax year, that band remains £6,240 to £50,270. Earnings below the lower limit don't count for minimum contribution calculations and earnings above the upper limit don't count either.
That band is one reason employees sometimes assume they're saving "8% of salary" when they're actually saving 8% of part of their salary.
Auto-enrolment explained: who qualifies and what you must do
Step 1: know who counts as a "worker"
Auto-enrolment duties apply to people who work for you under a contract (employment contract or a contract to perform work personally).
In practice, this often includes:
Employees.
Some contractors who aren't genuinely running a business on their own account.
If you're unsure about someone's status, it's worth checking early. Misclassifying workers is how pension issues show up years later.
Step 2: assess staff each pay period
Auto-enrolment isn't something you do only once. You must assess your staff regularly (typically each payroll run) because people's age and earnings change.
The headline trigger that most SMEs focus on is the earnings trigger for automatic enrolment, which remains £10,000 a year for 2026/2027.
Separately, the qualifying earnings band (used for many minimum contribution calculations) remains £6,240 to £50,270 for 2026/2027.
Step 3: enrol eligible staff and write to them
When someone's eligible, you must put them into a qualifying pension scheme and send them the necessary paperwork explaining:
What's happening.
What contributions will be paid.
How they can opt out (if they want to).
Step 4: pay contributions on time
Pension contributions are part of a clean and well-run payroll process. Paying employees late or not at all are likely to attract attention from The Pension Regulator (TPR).
Step 5: declare compliance
You also need to submit a declaration of compliance to TPR. The deadline is five calendar months from when your legal duties begin.
Even if nobody ends up enrolled (for example, because everyone is under the threshold or opts out), you still have duties and still need to declare.
Step 6: keep records
You must keep records showing how you've met your duties. TPR notes that records must usually be kept for six years, except opt-out (and leaving) requests, which must be kept for four years.
Step 7: re-enrol every three years
Auto-enrolment includes a "second look" every three years. Broadly, you assess certain staff again and re-enrol those who previously left (if they're eligible).
TPR describes this as cyclical re-enrolment every three years.
Contribution rates and employer responsibilities
The legal minimum contributions (what most SMEs budget for)
For most auto-enrolment schemes using qualifying earnings, the minimum total contribution is 8% of qualifying earnings, typically made up of:
3% employer.
5% employee, which usually includes basic-rate tax relief (often described as 4% employee plus 1% tax relief, depending on how the scheme handles relief).
MoneyHelper also explains this common 8%/3% structure in plain English.
A simple cost example (so you can check budgets make sense)
Let's say you have an employee earning £30,000 a year and your scheme uses qualifying earnings.
Qualifying earnings are the slice between £6,240 and £50,270.
So qualifying earnings here are £30,000 minus £6,240 = £23,760.
Minimum employer contribution at 3% = £712.80 per year (about £59.40 a month).
Total minimum contribution at 8% = £1,900.80 per year.
That's the "minimum legal" lens. Some employers choose to calculate contributions on full salary instead, or to contribute more than the minimum.
That can be a meaningful way to retain staff – but it's a choice, not a requirement.
What employers are responsible for (in real-life terms)
As an employer, you're responsible for:
Selecting a qualifying scheme (or making sure your existing scheme meets qualifying criteria).
Assessing staff and enrolling eligible jobholders.
Paying contributions correctly and on time.
Giving staff the necessary documents explaining their pension.
Maintaining records and submitting declarations of compliance.
When businesses fail to follow the rules, it's usually because they've treated the tasks as something to do when they have time, rather than building it into their payroll processes.
Choosing a pension provider: NEST vs private schemes
There isn't a single "best" workplace pension for every SME.
What matters is whether the provider suits how your payroll is set up, your team and how hands-on you want to be.
Option 1: NEST (National Employment Savings Trust)
A lot of small employers use NEST because it's accessible and straightforward.
NEST's standard charging structure is:
1.8% contribution charge on each contribution paid in.
0.3% annual management charge on the pot's value each year.
Those charges are paid by members (employees), not by the employer.
When NEST tends to fit well
You want a default option that's widely recognised.
Your admin is lean and you need something that integrates cleanly with payroll.
You're prioritising keeping to pension rules and operating something simple over a highly tailored benefits package.
Option 2: private workplace pension providers
Private providers vary widely when it comes to:
Levels of support.
Options for integrating with payroll.
Tools for communicating with pension holders.
Approaches to investment.
Fee structures.
If you already use an accountant, a payroll bureau or an HR platform, ask what they see working well in businesses like yours.
The "best" pension on paper is less useful if it creates friction every pay run.
How to get a workplace pension started: practical tips
1. Treat pensions as part of payroll, not a separate project
The cleanest workplace pensions are the ones that live inside the payroll routine, which involves:
Assessing eligibility each pay run.
Sending contribution files.
Reconciling payments.
Keeping a record trail.
If you already have payroll software or a payroll bureau handling this, pensions become far less painful.
2. Know when your duties legally begin
For many small employers, duties begin from the day the first worker starts. Your compliance clock (including that five-month declaration deadline) follows from there.
3. Budget with real numbers
When you're planning headcount, build employer pension contributions into your costs – just like employer National Insurance.
If you use qualifying earnings, a quick rule of thumb is employer cost being 3% of (salary minus £6,240) for most employees under the upper cap. It's not perfect, but it gets you close enough to forecast.
4. Don't ignore opt-outs – but don't design around them either
Some employees opt out. That happens. Your job is to:
Enrol people correctly.
Give them the right information.
Process opt-outs correctly (including refunds, where necessary).
Keep records.
5. Put re-enrolment in your calendar now
Three years goes quickly in a growing business. Re-enrolment is predictable and manageable if you plan for it, chaotic if you remember it late.
The Pensions Regulator's guidance confirms the cyclical nature of re-enrolment and the date window rules.
6. Keep communications simple (and consistent)
Employees don't need a lecture on pension regulation. They need answers to these questions:
"How much is coming out of my pay?"
"How much is the business adding?"
"Where can I see my pot?"
"What happens if I leave?"
Pensions if you're self-employed (or a director without auto-enrolment nudging you)
If you're self-employed, the law doesn't say you must set up a workplace pension.
However, that doesn't mean pensions are optional in any meaningful sense. The risk is simply that no-one is forcing the habit.
The usual options
Most self-employed people look at one (or a mix) of:
Personal pension (a private pension you set up yourself).
SIPP (Self-Invested Personal Pension – more investment choice, often more responsibility).
Stakeholder pension (a type of personal pension with capped charges in certain cases; less common than it once was, but still around).
Why pensions are tax-efficient for the self-employed
The headline benefit is tax relief. Most personal pensions claim tax relief automatically at 20%.
That means a £100 contribution effectively costs £80 for a basic-rate taxpayer, with higher/additional rate taxpayers able to claim more relief through HMRC processes.
This is one of the rare cases where the tax system genuinely rewards "putting money aside".
A simple way to think about saving for a self-employed pension
If your income rises and falls, try approaching pension contributions like a standing business habit, not a once-a-year scramble:
Set a baseline monthly contribution you can stick to even in quieter periods.
In stronger months, top up your pot.
If you have a very profitable year, consider a larger contribution – but be mindful of annual allowance rules and your personal tax liability.
(If you're contributing large sums, it's worth getting advice so you don't trip over the more technical rules – for example, tapered allowances for very high earners.)
If you run a limited company
If you're a director and take income via salary and dividends, the "best" approach depends on your wider tax planning and strategy for paying yourself.
Many directors choose to make pension contributions via the company because it can be efficient.
But the right structure depends on circumstances – this is the point where a good accountant earns their keep.
Conclusion and next steps
If you employ staff, your pension scheme needs to run smoothly – the right people enrolled, contributions paid on time and records kept in order.
Start by confirming when your duties began and which workers fall under the auto-enrolment rules, then choose a provider that fits your payroll set-up.
Once the scheme is in place, build it into your regular payroll process so it stays accurate as your team changes.
Submit your declaration of compliance within five months and keep re-enrolment and record-keeping organised.
If you're self-employed, a personal pension or SIPP is also worth considering as a tax-efficient way to save for the future.
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