Lee Mannion | Friday 28th April, 2023
Yes, companies have to do auto-enrolment and yes, if you’re the person who has to choose and implement it, this might feel like a mountain to climb. To put some fire in your belly for the task ahead, here’s some reasons to be cheerful about it:
Let’s start at ground level. A workplace pension is a retirement savings plan set up by an employer and is available to their employees as a benefit. The employer will also contribute to the pension on their behalf.
Since auto-enrolment was introduced in 2012 all employers are required to offer employees a workplace pension. This was made mandatory to encourage people to save for their future but employees can still opt out if they want to.
There are two types of workplace pensions in the UK: defined benefit (DB) and defined contribution (DC). With a defined benefit pension, employees are guaranteed a certain amount of income in retirement, based on factors like salary and the length of time they've been with their employer.
A defined contribution pension is based on the contributions employee and employer make, which are then invested in a fund that's designed to grow over time. The final amount of pension savings is determined by the performance of the fund.
Choosing a workplace pension scheme may seem daunting, but relax – this article is here to make it easier for you. We’ve saved some of the more technical considerations like different forms of tax relief and payroll integration for the end of this article. For now, here’s some of the major things to think about.
It's crucial to consider the needs of your employees and what will work best for your business. For example: does the pension offer a smartphone app and online access? A key factor in offering a new workplace pension to staff is to make it as easy to use and understand as possible, so do also consider the level of customer service provided by the pension provider.
Many pension providers offer online chat or a phone number to call but if you’re an HR or Finance Lead tasked with choosing a new workplace pension, you might also need a dedicated account manager offering 1:1 support who can help with onboarding staff and implementation. This is something Penfold offers.
Look at the investment options available. Penfold offers four types of plan including a sustainable option, which is fast becoming a non-negotiable. According to campaigning group Make My Money Matter, 68% of UK savers want their investments to consider people and planet, alongside profit.
You will of course want to consider the fees charged by the pension provider. Consider both the fees that your company will be charged and the fees your employees will be charged for managing their pension. You can find Penfold's fees here.
Remember that cheaper isn’t always better. If fees are low but it’s hard for your people to get an accurate picture of their future income or the customer service is bad, your staff won’t engage with saving. Maybe worse, they might even come to you for help with it. If your days are already busy, this might not be the ideal outcome!
Do ask your shortlist of providers about their fund performance. Like most things, you can do some initial digging around by Googling (e.g. “Penfold fund performance”) but different companies present their fund performance in different ways.
Do consider the length of time over which they show you how their fund has performed; we’ve seen everything from the last three months to the last five years.
As pensions are a long term investment, we’d advise viewing their performance over a couple of years at least. If you’re already talking to an account manager about potentially changing your company pension, do ask them if they have performance comparison tables.
Yep, sorry, here's some more. We're trying to do all the thinking for you!
Does it accept automatic enrolment requests?
Some workplace pension providers only accept companies with a certain number of employees or certain earnings.
How does it integrate with your existing company software?
Your payroll system works fine and you don’t want to have to change that as well as your pension provider. So: will the company you choose be able to integrate easily with what you have? Some companies (like Penfold) also offer customer support through internal communications systems like Slack or Teams.
Which Tax Relief Method is Used?
“Tax relief” is a passion killer of a phrase which we think should be rebranded as “free money from the government”. There are two ways to get your hands on it.
Relief at Source: your employee’s pension contribution comes out AFTER tax has been deducted. Your pension provider does the rest, claiming the tax back from the government and adding it into the employee’s pension fund. Tax relief is 20% so if an employee wants to contribute £100, they actually only need to contribute £80. (20% of £100 is £20. Add this to their £80 and you get £100 – the amount they want to contribute). If it still seems complicated, don’t worry. If your pension provider offers tax relief at source, they’ll do it all for you.
Net Pay: your employee’s pension contribution comes out BEFORE tax has been deducted. No tax relief here but your employee will end up paying less in National Insurance and will see their take home pay increase, so you could still consider it a tax break. It’s the same principle as Salary Sacrifice [LINK]. Again, don’t worry if you don’t understand it as the better pension providers will sort out the mechanics and hold your hand through the process.
Does your pension provider offer you a Salary Sacrifice scheme? This is a smart tax hack that reduces the amount of national insurance (NI) employees pay, giving them more in their take home pay. As companies have to pay NI on the salaries they pay, it also reduces the tax bill for businesses too. You can find more information on this here.
How is the Scheme Managed?
Managing a workplace pension scheme can be a real hassle when it comes to all the administrative work involved. Employers need to keep track of the scheme and make sure that everyone gets enrolled on time. Do you have the time to handle all of this yourself?
Fortunately, there are some workplace pension providers out there who can help lighten the load by assigning an account manager to take care of all the admin duties for you. If you think your company could benefit from this kind of service, it's definitely worth checking out which providers offer it.
Do your Employees Need Any Extra Support or Services?
One of the reasons that people are not saving enough for later life is financial literacy. The language pensions companies use when communicating can seem complicated and dull, making it harder for people to engage.
You might be want a pension company that will talk to people in a language they understand and offer onboarding sessions that don’t send people to sleep. There are loads of great formats that exist for this nowadays such as workshops, webinars, jargon busting sessions and 'Ask Me Anythings' (as long as its pensions related obviously). Just for the record, we love doing this sort of thing.
How much will an auto enrolment scheme cost?
Pensions companies are just like the one you are working for: they sell a product or service in exchange for money. After all, pension company employees also have to pay for a roof over their head and food to eat too. Fees and charges differ for the service you get.
As with everything, when you’re considering cost you should also consider quality. How well have their funds performed? And is it worth choosing a pension scheme with lower fees if it doesn’t offer the tools and hand-holding that will make it easy for your employees to engage with it? If you care about them, you’ll want them to feel confident and in control about saving enough for later life.
As the company auto enrolling your employees into a pension scheme, you will also have to pay some contributions, with the minimum amount being 3% of an employee’s qualifying earnings. So you’ll need to factor this into your budget.
We've given you a lot to think about. If it all feels a bit overwhelming, we'd love to help. Sometimes it's better to talk things through and have someone answer all the questions that you have. If that's you, then click here.