Your workers must have access to a workplace pension.
Not only would it increase their retirement savings, but it will also provide workers with more immediate financial security, which may boost productivity.
On the other side, locating one might be difficult. Since auto-enrolment was implemented, many suppliers have seized the chance and started providing workplace pensions of their own.
The legalities and how to choose the best workplace pension provider for you are covered in this article, along with a list of workplace pension plan providers to help you along.
Are small firms required to provide pensions?
Legally, sure. All businesses are required to enroll employees in pension plans and make contributions under the Pensions Act of 2008. Businesses that are hiring for the first time must also comply.
Any employee who is over 22 and makes more than £10,000 annually, £833 monthly, or £192 weekly must be enrolled in auto-enrolment. Even if you just have one qualifying employee, this still holds. If you don’t create one, The Pensions Regulator will penalize you, and you could have to retroactively pay your employee from the day they began working for you.
The Pension Regulator provides an online tool to assist you in determining your responsibilities if you’re unsure.
Auto-enrolment: What is it?
Government-mandated auto-enrolment is a pension program in which workers are automatically enrolled, and a portion of their wages are contributed to their pension plan, along with a matching contribution from the employer. At the time of writing, contributions must equal at least 8% of the qualifying wages, with the employer contributing at least 3% of that amount.
Here is a simple glossary to help you understand the many pension schemes.
Defined Contribution: Also referred to as money purchase plans, they are based on an agreement between employers and workers to contribute a certain proportion of income to a pension fund. Your pension provider invests the contributions after that. The most often presented plan is this one.
Defined Benefits: These are determined by a member’s pay and length of service with the company. Unlike DCS, the quantity of income generated is not contingent on market performance.
Group Personal Pensions (GPPs): A pension provider administers GPPs. Employees will enroll in the pension plan of the stated provider. The employer’s data about members is gathered and sent to the provider afterward. Employer and employee contributions help members build up their pot, and the money is then dispersed via a mix of stocks, shares, and other assets.
Master Trust:A board of independent trustees oversees a master trust, a kind of defined contribution that offers pensions to several unrelated businesses. By selecting a master trust, you avoid having to make decisions about who will manage the program or create specific regulations. This simplifies administration while preserving your control over contributions, the investment of plan funds, and the benefits provided to your workers.
Self-Invested Personal Pension (SIPP): A self-managed pension gives your workers control over the investments made with their contributions. It’s preferable for more knowledgeable employees who are familiar with the market and have more money to invest. When doing research, a Group SIPP—a collection of separate SIPPS that have been gathered—is more likely to be encountered.
How much does it cost my business to match employee contributions?
It depends on how much your employee pays in. Matching your employee contributions does act as an incentive for them to pay in more.
Employer contributions count as an allowable business expense too – so you can deduct them from your taxable profits to reduce your corporation tax bill. There’s no need to pay National Insurance on pension contributions either.
Choosing a workplace pension provider
First of all, it’s important that you don’t rush this process and find something that’s suitable. “As they’re starting to do their incorporation, setting up the business, it should be part of their plans at that point,” David Pye, client consulting director at Broadstone told Small Business. “We often get contact from a business that has got an employee starting next week, and they need a pension scheme legally. But obviously, it’s a rush. It’s not the nice, comfortable [period] where you can make a rational decision.”
“When looking for a pension provider for your workplace scheme, it’s very important to assess exactly what is included as part of the proposition on offer,” Jonathan Sidlin, managing director of HSC Financial Advisers told Small Business.
“You should make sure that the pension provider has access to a wide fund range and can offer other investment options. Many providers have competitive schemes in place specifically for small business owners and we find that particularly useful for our clients,” he added.
So, what should you be looking out for?
Eligibility
Consult the provider about eligibility if it’s not immediately obvious. Depending on the number of employees, some of the bigger companies may have limitations on the size of the company they permit. According to Pye, a minimum of five employees will be required by some big suppliers. That doesn’t imply that there must be five participants in the plan, but there must be five workers.
He also said that if you have less than five workers, you should look at Master Trust providers, citing three in particular as being highly popular choices for small enterprises to start with: Smart Pensions, The People’s Pension, and NEST.
Fees
It might be difficult to estimate expenditures upfront since many pension plans are tailored to the company’s requirements. Depending on the kind of assets being managed, there could be a tiered pricing structure. In addition, Sidlin advised that you familiarize yourself with the yearly management fees and total expense ratio (a metric for calculating the entire cost of funds to the investor) for any funds offered by the plan.
In particular, with relatively small schemes, most of the costs will come from the membership, according to Pye. Some companies may impose an implementation fee to put things in place, often between £300 and £500.
There could be costs if substantial amounts of money are stored. “Although it is not technically the employer’s obligation, some of our customers have over £100 million in their accounts, and that money requires some governance framework around it. Consequently, you would implement an annual review. These kinds of measures may be implemented for around $2000 each year, according to Pye.
Opportunities for investing
Consider the nature of your company and the kind of employees you want to attract both now and in the future. For example, employees may be drawn in by more alluring investing choices in their pension plan if they work in the financial or technology sectors. Additionally, suppose your company is known for its ethical practices. In that case, a pension provider that places contributions in eco-friendly assets or gives workers the option of choosing more ethical investments might provide you an advantage over your competitors. Pay attention to the returns over, say, five years.
The National Employment Savings Trust (NEST) is a good place to start if you just want to ensure compliance. This might eventually be a simpler and better alternative for you.
Communications
Check out the useful information offered to you and the staff. This could include a financial well-being portal, interactive tools, or textual or video guidance. It’s crucial to find out how the supplier informs you and your workers about changes and critical communications.
ESG qualifications
As more investors show interest, more workplace pension providers concentrate on environmental and social governance (ESG). This may be accomplished through shareholder power or strategies like carbon offsets.
Changing employers that provide pensions
You may be aware of everything and are just wanting to switch service providers. Give the switchover procedure three months in such an instance. Although it could certainly be completed more quickly, it would be best to be more relaxed.
Moving your workers’ cash over is the problem. “The employer doesn’t have the right to pick up the monies that have already been invested, that may have been invested for two, three, or longer; it has to be an employee option,” said Pye. “Ideally, you would assist the staff members in that. Although it’s not a tough procedure, people must be informed.
Who offers the top workplace pensions?
There are several factors to take into account when comparing workplace pension providers. To start, do a quick web search to see what’s available. However, it’s advisable to avoid becoming too dependent on it since you could pass on a business providing a better bundle farther down the search engine ranks. This also carries the risk of having too many options. There is a risk that a three-man company that has been in operation for six months will get a thorough market analysis and that 60% to 70% of the market won’t consider them because they are too tiny.
Talk it over with your co-directors or consultants and get their opinion. Additionally, if you can, consider consulting a financial expert.
List of workplace pension providers
To help you out in the meantime, here are some of the main workplace pension providers and a table of key features.
| Provider | Types of pension | Fees | Integrations |
|---|---|---|---|
| Aegon | Master Trust, Direct Contribution Contracts | Up to 0.60 per cent annual percentage charge based on fund value | HR, payroll |
| Aviva | Master Trust | Dependent on scheme. Employees also pay a fund charge between 0.2 per cent and 0.75 per cent per year | Payroll |
| Cushon Master Trust | Master Trust | Standard annual management charge is 0.55 per cent for companies with ten or more employees and 0.65 per cent for companies with fewer than ten employees | Benefits |
| Fidelity | Master Trust and Group Personal Pensions | Based on client needs | None |
| Hargreaves Lansdown | Group SIPP | Not stated | None |
| Legal & General | Master Trust, contract and trust-based pensions | Not stated | None |
| NEST | Master Trust | Annual management charge of 0.3 per cent of total value of member’s fund and a contribution charge of 1.8 per cent on each new contribution made into a member’s pension scheme | Payroll |
| The People’s Pension | Master Trust | Annual charge of £2.50 – equivalent to 21p a month, management charge of 0.5 per cent of the value of a member’s pension pot each year, rebate on the management charge, giving back between 0.1 per cent on savings over £3,000 and 0.3 per cent on savings over £50,000. One-off set-up fee of £500 + VAT for employers – this can be reduced to £300 if you go through a business adviser. Employees will be subject to an annual 0.5 per cent management charge | Payroll |
| Royal London | Group Personal Pensions | Not stated | None |
| Scottish Widows | Group Personal Pensions | Average 0.46 per cent charge per year (2020) | None |
| Smart Pension | Master Trust | Monthly account charge of £15 + VAT. No charge if you pay contributions by direct debit, £30 a month if you pay by BACS. Members whose employers have signed up directly have an annual management charge of 0.30 per cent and a monthly fee of £1.25 | Payroll |
| Standard Life | Master Trust, Group Pension Plans, Group SIPPs | Not stated | None |
| True Potential | Personal Pension | Fund cost is 0.31 per cent plus a platform fee of 0.40 per cent, totalling of 0.71 per cent | Payroll |
Aegon
Types of pension: Master Trust, Direct Contribution Contracts
Fees: Up to 0.60 per cent annual percentage charge based on fund value.
Aegon is one of the largest pension providers in the UK, supporting over 10,000 employer schemes and managing savings of over 920,000 members. It says it provides a full range of savings options ‘that can meet every employer’s requirements, whatever the size, complexity or future plans.’
Features
- Financial wellbeing hub for employers
- SmartEnrol supports the enrolment and re-enrolment of eligible employees into your pension scheme so your employees don’t have to
- Integration with HR and payroll systems
Aviva
Types of pension: Master Trust
Fees: Dependent on scheme. Employees also pay a fund charge between 0.2 per cent and 0.75 per cent per year.
Aviva has a selection of online guides to help you sort out your employees pension scheme without having to talk to a customer services team. A minimum number of contributing employees may be required to sign up with Aviva.
Features
- No set-up fees
- Easy to set up
- Free online management dashboard
- 200 investment fund options
Cushon Master Trust (formerly Salvus Master Trust)
Types of pension: Master Trust
Fees: Standard annual management charge is 0.55 per cent for companies with ten or more employees and 0.65 per cent for companies with fewer than ten employees.
Hailing itself as the world’s first net zero pension, Cushon promises a true investment in your employees’ future as well as a jargon-free experience so that they can understand what they’re getting. However, there are only 90 investment options, fewer than some of the other providers.
Features
- Integrates with your existing benefits platform
- Support to encourage employees to reach savings and retirement goals
- App-enabled ESG voting allows employees to have their say in how organisations they invest in conduct themselves
- Help for employees who are hindered by the Lifetime Allowance, Money Purchase Annual Allowance or the Tapered Annual Allowance
Fidelity
Types of pension: Master Trust and Group Personal Pensions
Fees: Based on client needs
Flexibility is the name of the game with Fidelity. Funds from Fidelity and other leading fund managers across a variety of management styles, asset classes and risk profiles. Though Fidelity has no eligibility criteria, it said that its focus tends to be on larger corporate clients.
Features
- Flexible retirement options
- Investment-only solutions
- Workforce management capabilities
- In-scheme flexible options, including regular income drawdown
Hargreaves Lansdown
Types of pension: Group SIPP
Fees: Not stated
This is definitely a pension for employees who are interested in investment opportunities. The Group SIPP is similar to the Group Personal Pension in that payments are invested in a low-cost investment fund. However, HL experts help employees to make their own investing choices by providing investment ideas and ready-made portfolios. The scheme is open to most small businesses, but it’s typically businesses with 50+ that use it.
Features
- Thousands of funds and investment options
- Multiple ways to apply
- Flexible retirement fund options for employees
Legal & General
Types of pension: Master Trust, contract and trust-based pensions
Fees: Not stated
Legal & General have multiple savings options and you can opt to do a salary sacrifice arrangement if it’s more suitable for employees. There’s a big focus on employees with a financial wellbeing hub as well as flexibility at retirement with the choice of cash lump sum, a flexible income, annuity and transferring pension benefits.
Features
- Wide range of investments including standard, bespoke and investment-only options
- Bespoke enrolment service
- Retirement planning tool
- Budgeting tool
- Online scheme management system
National Employment Savings Trust (NEST)
Types of pension: Master Trust
Fees: Annual management charge of 0.3 per cent of total value of member’s fund and a contribution charge of 1.8 per cent on each new contribution made into a member’s pension scheme
The National Employment Savings Trust (NEST) is set up by the government and is a popular starting point for most businesses, especially microbusinesses. It helps firms meet basic compliance but doesn’t come with the investment options that some of the other providers do. Its low fees make it one of the cheapest workplace pension providers.
Features
- No shareholders or owners
- Low fees
- One of the few schemes open to all businesses
The People’s Pension
Types of pension:Master Trust
Fees: Annual charge of £2.50 – equivalent to 21p a month, management charge of 0.5 per cent of the value of a member’s pension pot each year, rebate on the management charge, giving back between 0.1 per cent on savings over £3,000 and 0.3 per cent on savings over £50,000.
One-off set-up fee of £500 + VAT for employers – this can be reduced to £300 if you go through a business adviser. Employees will be subject to an annual 0.5 per cent management charge.
The People’s Pension, as the name suggests, aims to be straightforward and accessible for the people. It has the reduced focus on shareholders that NEST has, with many more investment options.
Features
- Support to make sure your small business is compliant with auto-enrolment
- The default fund, which the vast majority of members are invested into, is MSCI AA rated, making it an ESG leader
- Compatible with leading software providers
- All new contributions go into net zero investments
Royal London
Types of pension: Group Personal Pensions
Fees: Not stated
Royal London can tailor its pension offering to meet the needs of your business. There’s flexibility in retirement and contributions for employees. They can move to another plan that gives them the flexibility to take a regular income when they need it through income drawdown. They can also do contributions through salary exchange, where your employees agree to exchange part of their salary, bonus or redundancy package for an increased employer contribution package.
Note that it’s only sold through financial advisers so will likely be more costly upfront.
Features
- Training and personal support is provided
- No charge for transferring from another provider
- Profitshare – Royal London aim to share profits to scheme holders when the firm is doing well
- Create your own branded employee engagement hub
- Receive scheme governance reports to show you how engaged your employees are
Scottish Widows
Types of pension: Group Personal Pensions
Fees: Average 0.46 per cent charge per year (2020)
Scottish Widows is working to integrate ESG considerations into their pension portfolios as well as giving you ongoing support throughout the time of your pension plan.
Features
- Free digital pension transfer service for employees
- Wide range of investment options
- Tailored bulk annuity solutions, i.e. an insurance policy that is purchased by pension scheme trustees to better secure members’ benefits
Smart Pension
Types of pension: Master Trust
Fees: Monthly account charge of £15 + VAT. No charge if you pay contributions by direct debit, £30 a month if you pay by BACS. Members whose employers have signed up directly have an annual management charge of 0.30 per cent and a monthly fee of £1.25
Smart Pension prides itself on being a digital first option which makes it easier for employers to run with its automated ongoing processes. It’s also ISO27001-certified meaning that data is safe and secure.
Features
- 70 per cent of default investment strategy invested into sustainable investment funds
- Payroll integration
- Set up account within minutes
- Rewards which help employees save at major retailers
Standard Life
Types of pension: Master Trust, Group Pension Plans, Group SIPPs
Fees: Not supplied
Big player Standard Life provides a lot of guidance on auto-enrolment for those that are new to it. You’ve also got the option to switch if you’re already with another provider. They plan to make things as easy as possible for your employees, giving them retirement planning support and assistance when their retirement comes around.
Features
- In-scheme drawdown scheme for employees
- Competitive annual management fees
- Annual pension benefit statements for employees
- Online administration hub
True Potential
Types of pension: Master Trust
Fees: Fund cost is 0.31 per cent plus a platform fee of 0.40 per cent, totalling of 0.71 per cent
True Potential says that it’s auto-enrolment on auto pilot. It can take care of lots of different elements for you including communications with employees, managing contributions and enrolling eligible workers.
Features
- Payroll integration
- Employees can invest in exclusive True Potential portfolios
- Easy to transfer from NEST
- Offers range of risk-rated investment funds
I still can’t decide on a workplace pension provider – where can I go for further advice?
It’s a complex and important decision to make so you should take the time to ensure it’s right. Have a word with an independent financial adviser (IFA). You can find them through unbiased.co.uk and you can edit your preferences to find one who deals with pensions specifically.
