Your workplace pension: are the numbers adding up?

Have you ever knowingly thrown away chunks of your hard-earned money? We know: ridiculous, right?

Now what if we tell you that, as a senior executive, your company might already be doing so because the way your workplace pension is set up means you remain blissfully ignorant of this happening?

Workplace pension contributions are beautiful as a concept, fostering security and long-term financial health for employees. They help cultivate a healthier, more engaged workforce, which, just like a viral ad campaign, is excellent for business.

But both legacy pension providers and the government have contributed to a system that could work a lot better than it currently does. Here’s a few things to keep in mind.

The taxation obstacle course

Governments of different political stripes are seemingly always eager to tinker with taxation which has prevented them from achieving an ideal: to make workplace pensions simply tax-efficient by default.

Instead, there are hoops to jump through and loopholes to unearth to avoid a completely unnecessary National Insurance tax on employee pension contributions.

Take Salary Sacrifice for example. Initially puzzling (“How will I take home more if I earn less on paper?”), it’s one such loophole, but simple to administer, leaving both staff and business better off.

You might very reasonably think that the nation’s pension providers will help navigate this labyrinth.  Well … some do. But many legacy providers often show the dedication and creativity of a sloth on sedatives when it comes to this.

Once they’ve bagged your business, maybe they don’t feel like they have to work too hard to keep you. After all, switching the company pension is a big bit of work most senior executives would like to avoid, right?

They’re banking on you thinking this but don’t be fooled – switching is straightforward and far from being the huge headache you might imagine it to be.

Getting bang for your buck

Your pension provider should be adding value beyond the minimum, contributing to employee engagement, promoting financial education, and offering tools for comfortable retirement planning. Your workplace pension is, after all, your most expensive benefit.

An exceptional pension is a power tool, directly impacting employee wellbeing, productivity, and overall job satisfaction. From a business perspective, consider the return on investment it provides if it helps to retain your best talent. It will not only reduce the administrative burden but will save your company money.

The average cost of losing an employee is around £30,000, according to Oxford Economics and Unum. That includes the lost productivity from their departure, the cost of hiring someone new and getting their replacement up to speed.

And your existing employees will thank you for putting a tool in their hands that helps them manage their finances. Instead of paperwork hidden away in files at home, a pension that sits on their phone is always accessible.

Technology (like our app) not only enables employees to figure out how much they might need for retirement, but set a savings goal and monitor the progress towards it. We back this up with regular communications and educational content that helps staff to feel confident in managing their finances.

Ultimately this is going to leave everyone better off. The less stressed employees are (worrying about money being a common cause of anxiety), the more productive they’ll be.

If you haven’t heard from your pension provider in a while, or if they’re not providing the kind of service that the best professional talent expects, consider if they are serving your business as well as they might.

How poor fund performance could cost you

Could you tell us by what percentage your pension grew by over the last few years? If your pension provider is not regularly letting you know how well they are growing the pension funds they manage, you should ask yourself why. To help bring this to life, imagine, if you will, an employee called John.

He's worked diligently for 30 years, only to find his retirement funds won’t pay for the kind of lifestyle he expected because his pension wasn't properly managed.

The lack of proactive updates from his pension provider led to a lack of regular reviews, which translated into a lack of money for dear John. It's a tale as old as time: a small oversight leading to disastrous consequences.

Small percentages in the performance of different pension funds don’t seem like much, but if you’re stuck with a poor performing pension fund across an entire career, each 1% below average annualised growth rate can cost a typical employee (with a median career salary of c.£32k) £100k+ in final pension pot size! That kind of money can make a big difference to the quality of life in retirement.

And all because of a pension provider that kept communications to a minimum and banked on you not comparing their fund performance to any others. We regularly do this in our quarterly reports, in case you were wondering.

Next steps

Now armed with the knowledge of workplace pension inefficiencies, we hope you feel better informed to make decisions that ramp up return on investment when it comes to your most expensive benefit.

Workplace pension providers should be treating hard-earned pensions with the respect they deserve, engaging you with updates, and supporting you in navigating the labyrinthine tax system.

If you don’t feel that your current provider is optimising your fiscal situation and that of your employees, maybe it’s time to consider your options? Find out how easy it is to switch workplace pensions and the better pension providers out there (like us!) will help manage the whole process for you.

Find out how Penfold can bring financial wellbeing to your team, book a demo today.