What is a Private Pension?

A private pension (also known as a 'personal pension') is set up by an employee with no input from the employer. This is in contrast to a workplace pension, which is set up by an employer with no input by the employee.

Private pensions are a personal pension that does not affect auto-enrolment or workplace pension contributions.

A personal pension is a tax-efficient way of adding to a pension pot:

When someone is self-employed
In addition to a workplace pension
Where someone is not eligible to be in a workplace pension

Tax Rules

Private pensions also have a form of tax relief that mirrors relief at source.

This is claimed for the employee by the pension provider rather than in the app.

Paying the Provider

There are two options available to the employee for how the pension provider is paid:

The employer deducts the contributions from the employee's net pay and pays this to the pension provider
- This could be employee only contributions, or employee & employer contributions
The employer (if it is an employer only contribution) can make a net payment to the employee for the employee to then pay over to the provider.
- This is a higher risk option as the employer has no means of checking that the payment has been given to the provider.

PayFit cannot make private submissions on your behalf so these will need to be paid by the admin. We also don't generate any submission files for private pensions.

However, the private pension contribution will show in the "Payments to Make" section for the employer to make the payment.

How to Add a Private Pension in PayFit

Go to My Company > Pensions > Private schemes > Add private pensions.

Note: Private pensions are not available if there are 5 workplace pensions in PayFit already. The private pension needs to be included in the 5 pension schemes in the app.

Toggle enable private pension.

You can enrol someone into a private pension scheme by clicking Edit > choose the relevant options.

The employee is now on a private pension 😁

FAQs

If an employee only wants to opt into a private pension, is there still a legal obligation to enrol him in the company auto-enrolment scheme?

The employee still needs to be auto enrolled into the company auto-enrolment scheme first and then can opt out after month one, as with any other pension.

If an employee is contributing to a private pensions scheme, is the company required to provide legal contributions to this scheme instead?

if the employee has opted out of the workplace pension, there is no legal requirement to provide a contribution to their private pension instead - unless their contract states otherwise.