Choosing the best workplace pension for your business

Benefits of choosing the best workplace pension

The responsibility of setting up or changing your workplace pension scheme can appear like a daunting task, but it’s worth considering some of the potential benefits to make the process less intimidating:

  • Staff retention could improve: Proper implementation of your workplace pension can enhance employee loyalty, making your workload more manageable in the long run.
  • Transitioning to a superior provider is no longer a hassle: If you’re contemplating changing your current workplace pension scheme, the process isn’t as challenging as you might think. Many pension companies (we’re one of them!) are prepared to assist you with the heavy lifting.
  • You can aid your employees and business in saving considerable amounts: If you neglect to periodically review your pension, your company might be losing money that could be allocated towards pay raises or bonuses. Fees occasionally fluctuate, and the top-tier pension providers often suggest simple strategies to maximise savings.

What is a workplace pension?

At its core, a workplace pension is a retirement savings plan organised by an employer for the benefit of their employees, who also contribute to the pension.

As of 2012, the introduction of auto-enrolment mandates all employers to provide a workplace pension. While this scheme is designed to encourage people to save for their future, they can opt out if they choose to.

In the UK, there are two forms of workplace pensions: defined benefit (DB) and defined contribution (DC). Defined benefit pensions guarantee a specific retirement income based on factors like salary and length of service.

On the other hand, a defined contribution pension depends on contributions from the employer and the employee, which are invested to grow over time. The eventual pension savings rely on the performance of the invested fund.

What to consider when choosing a workplace pension provider

Choosing a workplace pension scheme can be overwhelming, but this article aims to simplify the process. More complex aspects like varying tax relief methods and payroll integration will be covered later. For now, let’s focus on some key points.

  • Is it user-friendly? It’s essential to account for your employees’ needs and what suits your business best. For instance, does the pension scheme provide a smartphone app and online access? Making the new workplace pension as comprehensible and easy to use is crucial. Therefore, consider the customer service level offered by the pension provider.
  • Do they provide support when required? Many pension providers provide online chat or phone support. However, if you’re an HR or Finance Lead tasked with selecting a new workplace pension, you might need a dedicated account manager who can assist with staff onboarding and implementation. This is something we, at Penfold, offer.
  • Do the investment options align with your preferences? Examine the available investment options. Penfold offers four plans, including a sustainable option, which is increasingly becoming a necessity. As per the campaign group Make My Money Matter, 68% of UK savers want their investments to have regard for people and the planet, along with profit.
  • What are the costs involved? Fees charged by the pension provider should be a consideration. Evaluate both the charges for your company and the management fees for your employees’ pensions. Bear in mind, cheaper doesn’t always translate to better. If lower fees result in poor service or a lack of clarity about future income for your employees, they may disengage from savings. Worse, they might require your assistance, which may not be ideal if you’re already swamped with work!
  • How effectively will they grow pension savings? Make sure to ask potential providers about their fund performance. Although performance information can usually be found online (e.g., “Penfold fund performance”), different companies showcase their fund performance differently. Consider the duration of the fund’s performance data; it can range from the past quarter to the last five years. Pensions are long-term investments, so it’s recommended to evaluate their performance over a significant period. If you’re already in discussions with an account manager about altering your company pension, ask if they have performance comparison tables.

More things to consider when selecting a workplace pension scheme

There’s more to think about when choosing a workplace pension provider. But don’t worry, we’re here to help!

  • Does it accommodate automatic enrolment requests? Some pension providers only accept companies with a certain employee count or income level.
  • How does it align with your current company software? Your payroll system works perfectly fine, and you wouldn’t want to replace it along with your pension provider. Thus, will the provider you select be able to integrate smoothly with your existing systems? Some providers (like us, Penfold) offer customer support through internal communication platforms like Slack or Teams.
  • Which Tax Relief Method is Used? Relief at Source pension contributions from your employee are taken after tax deduction. The pension provider will then claim the tax back from the government and add it to the employee’s pension fund. Tax relief is at 20%, so if an employee wishes to contribute £100, they would need to contribute only £80. The provider will claim the additional £20. If this seems complex, don’t worry. If your pension provider offers tax relief at source, they’ll handle all the details. Net Pay contributions from your employees is deducted before tax. While there’s no tax relief here, your employee will end up paying less in National Insurance and will notice an increase in their take-home pay. This could still be seen as a tax benefit. This operates on the same principle as Salary Sacrifice. If this appears complicated, don’t fret. The leading pension providers will guide you through the entire process.
  • Salary Sacrifice: Does your pension provider offer a Salary Sacrifice scheme? This smart tax strategy can reduce the amount of national insurance (NI) employees pay, thereby increasing their net pay. Businesses also benefit from reduced tax bills as they’re charged NI based on the salaries they pay.
  • How is the Scheme Managed? Managing a workplace pension scheme can be quite demanding, particularly the administrative work. Employers need to monitor the scheme and ensure everyone is enrolled timely. Do you have the bandwidth to manage all these tasks independently? Thankfully, some pension providers can alleviate this burden by assigning an account manager to handle all administrative duties. If you believe your company could benefit from this service, you should research which providers offer it.
  • Do your Employees Need Any Additional Support or Services? One reason people aren’t saving sufficiently for their retirement is lack of financial literacy. The communication from pension companies can be complex and uninspiring, making engagement challenging. You may want a pension company that communicates effectively and provides engaging onboarding sessions. There are numerous formats for these, like workshops, webinars, jargon-busting sessions, and ‘Ask Me Anything’s’ (as long as it’s pension-related, of course).
  • What will an auto-enrolment scheme cost? Pension companies operate much like your business: they exchange products or services for money. Their employees also have living expenses. Fees and charges vary based on the services provided. When considering costs, also weigh quality. How have their funds performed? And is a lower-fee pension scheme worth it if it doesn’t offer the tools and support needed for your employees to engage? If you care for them, you’ll want them to feel secure and in control of their future savings.

In conclusion

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There’s a lot to think about when choosing a workplace pension provider. If you feel overwhelmed, Penfold are more than happy to help with answering any the questions that you may have.

Contact Penfold for help today or see how we help HR teams engage, attract and retain the best talent.