How Much Does A Group Workplace Pension Cost To Set Up?

How Much Does A Workplace Pension Scheme Cost To Set Up?

There are one-off costs when setting up a workplace pension. But you also need to factor in the ongoing costs of paying contributions.

Before setting a scheme up (choosing a provider to do it for you), it’s important to understand these costs.

Set-Up Costs

The cost of setting up a scheme depends on:

• How many employees you have
• The chosen pension scheme
• How you run your payroll
• Your use of financial advisers.

Some providers will charge a one-off fee that covers the set up duties. For example, one pension provider has a setup fee of £500 plus VAT, reducing to £300 plus VAT if you go through an adviser.

Admin & Management Costs

Setting up and running a workplace pension comes with plenty of admin. Employers will have to sacrifice a certain amount of time to complete their legal duties. You can do most tasks digitally, though, helping to make it a less-demanding process.

If you have up to four workers, you can expect to spend 15 hours setting up an auto-enrolment pension. That said, employers can outsource this task, as well as the ongoing management of the scheme. Some pension providers will charge monthly administration fees. This covers the management of your workplace pension.

Corporate Adviser Costs

You can set up a workplace pension yourself, or you can use a business or financial adviser to support you. This will come at a price, though.

Advisers can help you find the right scheme for your business and set up your payroll for contributions. The cost of using an adviser will vary depending on how much advice and support your company needs.

Payroll Costs

As mentioned, setting up your payroll system to deduct payments can cost. Most payroll software is compatible with auto-enrolment. It will need extra upkeep though, so this is something to think about. If your existing payroll software isn’t compatible, there will be a price attached to arranging this.

You can outsource payroll set up. But either way, you need to first find out what auto-enrolment tasks your existing payroll can support.

If you outsource your payroll to a payroll provider, check whether automatic enrolment is included in their fees. Some charge extra for this service.

For small-sized employers, the payroll set-up cost can be up to £300.

It’s important you factor these costs into your employee benefits budget.

Josh Martin
Pension & Investment Adviser

Ongoing Workplace Pension Scheme Costs

Once you’ve set up your workplace pension scheme, you must contribute monthly to your employees’ pension. This is an ongoing cost.

The price of which depends on the provider you use and the extra fees they charge. It also depends on how much you wish to contribute to your employees’ pension pot.

Employer Contributions

You are required by law to pay minimum contributions to your workers’ pension. The government set this as 3% of the employee’s qualifying income.

However, you can offer higher pension contributions if you wish, or cover both the employer and employee payments. Some pay all contributions as part of a valuable employee benefits package.

The Pensions Regulator has a useful contributions calculator to help you work out your company’s pension contribution costs.

Ongoing Pension Charges

Pension charges are often levied onto the scheme by the provider to cover their services. This will vary depending on the provider you choose.

Before choosing one, it’s important to have a clear understanding of what the ongoing fees are. This prevents any nasty surprises occurring once you have set the scheme up. You’ll also be able to budget accordingly.

Annual Management Charge (AMC)

An annual management charge covers the running of the workplace pension scheme. Employees pay a set amount or a percentage of the value of their pension pot.

This is taken directly from their pension fund and capped at 0.75% a year. Each type of investment fund may have a different AMC. Schemes with specialist funds or actively managed ones will usually have higher charges, for example.

Monthly Administration Fees

Most pension providers have charges in place for businesses using their schemes. These charges will depend on the specific provider, though.

Employers may have to pay a monthly fee to cover the running and management costs. For instance, one provider charges £36 a month. But if you use a payroll bureau to manage your payroll, the fee will be lower. Discounts are given if you’re not using all the provider’s services.

How To Reduce The Cost Of Auto-Enrolment Workplace Pensions

Some of the automatic enrolment costs are unavoidable. But there are things you can do to reduce the cost of setting up and running a workplace pension.

1. Compare Workplace Pension Providers

Just like with any important purchase, you should shop around to find the right deal for your company. Comparing pension providers will help you find the best scheme for your employees.

It’s a good idea to weigh up the following factors when comparing pension providers:

• Contributions
  Check the minimum and maximum contribution levels allowed to ensure they’re suitable for you and your employees
• Management fees
  Compare the fees of each scheme and what the fees are for. You should also identify any hidden costs, such as inactivity, entry, transfer or exit fees
• Choice of investment options
  Some schemes only have a default investment fund. Others offer a range of funds for employees to invest in. It’s good to have a variety to ensure you select the right investments for your needs
• Extra benefits
  Some workplace pension providers offer perks, such as tax-free lump sum withdrawals or death in service benefits. When comparing providers, check what extra benefits they can offer your staff.

2. Regularly Review Your Workplace Pension Scheme

Regularly reviewing your workplace pension scheme will help you ensure it’s still the right one for your business.

If your workforce has grown, diversified, or even downsized since you set up the scheme, you can change it to one that better suits your new situation.

3. Work With An Adviser

Using their extensive knowledge of the UK market, advisers can recommend the best scheme. They will match your company’s needs to a scheme that’s most suitable.

A business adviser is best placed to help you find a deal that works for you. They can also save you time by managing the admin and contacting the provider. This allows you to set up your new workplace scheme quickly and efficiently.

Don’t be afraid to review your advisers regularly to ensure they continue to offer you value for money.

4. Save By Introducing Salary Sacrifice

Salary sacrifice is a way to pay workplace pension contributions.

Traditionally, workplace pensions were set up with the contribution deducted after tax (Relief at Source).

Salary sacrifice instead reduces the employee’s salary by the value of their pension contribution and pays the contribution before tax. Where the contribution has never formed part of the employee’s salary, it avoids Income Tax and National Insurance.

As a result, employers save on employer NI which can really add up as your workforce grows.

If company pensions weren’t confusing enough, implementing salary sacrifice can make it more complicated as you need to contractually change your employees earnings.

If you need help implementing salary sacrifice, give us a call on 02074425880 or email help@drewberry.co.uk.

Compare Workplace Pension Providers And Get Expert Advice

Choosing a workplace pension provider is a major decision. There are many providers available, but it’s not always easy to pick the best one yourself.

It’s important to compare the UK’s leading workplace pension providers, including:

• Aegon
• Aviva
• NEST
• NOW: Pensions
• The People’s Pension
• Royal London
• Scottish Widows.

Each scheme has its own features and benefits, which is why it’s important to compare them. Fortunately, that’s where we can help.

If you need pension advice or want to discuss how to find the right scheme for your employees, email help@drewberry.co.uk or call us on 02074425880 to speak to one of our friendly advisers.

Need Help? Get Expert Group Pension Advice

We’re here to take the stress out of setting up a workplace pension. Our team of experts will advise you on the best workplace pension provider for your business.

They will go through the pros and cons of each option, so you can make an informed choice for your workforce.

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