Choosing the best workplace pension for your company can be a difficult decision. There are many contributing factors, including your industry, the cost, and how it’s taxed. For example, some providers may offer salary sacrifice to benefit your company and staff.
A poorly chosen workplace pension may result in less savings for your employees. It could also cost your business more in administration fees. So, it’s important to get your workplace pension scheme right. We’re here to explain what you need to consider to pick the best pension provider for your business.
How To Pick The Best Workplace Pension For Your Company
As we mentioned, there’s plenty to consider when choosing a workplace pension. Some schemes might not be suitable for your employees or industry. So it’s essential to compare workplace pension providers first.
You’ll need an automatic enrolment scheme to ensure eligible employees are enrolled. Some may only accept employers with a certain number of employees or specific earnings. It’s important to check if the pension scheme is suitable for all team members.
EXPERT TIP 🤓
Schemes must be approved by the Financial Conduct Authority (FCA) or independently reviewed. This shows compliance of automatic enrolment duties.
How Does It Integrate With Your Existing Company Software?
As a workplace pension adjusts an employee’s monthly wage, this is a contractual change. Your payroll system must be compatible with the scheme to ensure correct contributions.
But not all payroll systems are compatible. You may need to outsource this task if this problem arises. If your payroll software is a match, you’ll save time and money when setting the scheme up. You will also need to check if the software can carry out automatic enrolment tasks.
Which Tax Relief Method Is Used?
It’s best to choose a workplace pension scheme with a tax relief method that suits your employee’s needs. These methods are:
Relief At Source
This method takes your employee’s contributions from their salary after tax. The pension provider will automatically top up each staff member’s savings by 20%. This is claimed back by the government as tax relief.
For example, an employee paying a 5% contribution of £100 a month will see an £80 deduction from their net pay. The additional £20 is the government’s contribution.
The Net Pay arrangement doesn’t provide tax relief per se. But as the employee’s contributions occur before taxation, they get tax relief immediately. This is because they only pay tax on their remaining income after deductions.
So, an employee earning £2,000 and paying a 5% contribution of £100, will only pay tax on the remaining £1,900. The employee’s monthly tax bill will be lower as a result.
Those earning below the personal allowance of £12,570 will not get any tax relief through Net Pay.
In fact, they will end up paying 20% more to their pension. If any of your staff earn less than £12,570 a year, the Net Pay method may not be the best option.
Senior Employee Benefits Consultant at Drewberry
Some workplace pension schemes operate through Salary Sacrifice. This lets staff contribute to their pension without lowering their take home pay. Pension contributions are deducted before their wage is taxed, making it tax efficient.
Employees pay less tax each month through this method. As their taxable income is lower, employers then pay less National Insurance (NI) as a result.
Salary Sacrifice can either be:
Increases an employee’s take home pay through NI savings, or
Increases the employee’s contributions without reducing take home pay.
Salary Sacrifice hasn’t always been available, but it’s becoming a popular option in workplaces. It’s important to remember that you can only use one tax relief method for your workplace pension.
How Is The Scheme Managed?
Managing a workplace pension scheme is admin-heavy. Employers need to keep track of their scheme and ensure enrolment happens on time. As an employer, you might not have the time to manage the scheme yourself.
Some workplace pension providers can take the workload off your hands. An account manager may be assigned to ensure completion of admin duties. If your company would benefit from this, check which workplace pension providers offer this service.
Working With A Corporate Adviser
The alternative is to work with a corporate financial adviser to manage the scheme on your behalf. At Drewberry™ , we can assist with the management of your pension scheme from governance to the every day administration if you find you don’t have the time or resources to do so yourself.
Please don’t hesitate to pop us a call on 02074425880 or email firstname.lastname@example.org if you would like to know more.
Do Your Employees Need Any Extra Support Or Services?
Most workplace pension providers have plenty of accessible resources. Make sure to check what information each provider offers and how comprehensive it is.
Many providers also have online portals for staff to access their pension documents. They can check their savings, switch funds, and see projected values at any time.
Providing Workplace Pension 1-2-1’s And Webinars
While providers supply a wealth of information, you may want to provide your staff with a more personalised experience. Presentations or 1-2-1’s with a corporate adviser may be of use to your employees in this situation. In fact, our 2022 Workplace Pension survey found that 1 in 3 employees would like company paid meetings with a financial adviser.
How Much Will An Auto-Enrolment Workplace Pension Scheme Cost?
All workplace pension providers have costs and charges. These differ from provider to provider, so it’s important you’re aware of how much the scheme will cost. Employers can then ensure they don’t go above the company’s employee benefits budget.
Providers take into account your employees, their salaries, and your business turnover. Employers may be liable for:
A monthly fee to run the scheme or a one-off set up fee
The cost to set up their payroll software to adhere to automatic enrolment duties
Ongoing advice and support costs from a third-party.
By law, employers must contribute at least 3% of an employee’s qualifying earnings into the scheme. These monthly payments should be factored into your budget.
Don’t forget the potential costs for your employees too. Most providers have an Annual Management Charge (AMC) for employees to pay. This is something to consider when evaluating your workforce.
As mentioned, corporate pension providers have fees and charges for setting up and running a scheme. The best workplace pension for your company is the scheme which suits your budget best.
Fees For Employers
We’ve outlined the key costs that you as an employer need to be aware of when looking at workplace pensions.
Set Up Costs
Providers may have no set up charges for employers, which is useful if you have a small budget. While other providers may have a one-off fee. This will depend on the scheme provider you pick.
Payroll Configuration Costs
If your payroll software isn’t compatible with the scheme, the costs will vary. Outsourcing the payroll tasks to an agency or an accountant will cost. Some will provide auto-enrolment tasks within their price or charge extra. For small businesses, the set up of the payroll software could cost up to £300.
There may also be a monthly charge for employers, depending on the provider. This will range in price, so you should check what each one charges before choosing your scheme.
If you need more support with your pension, the cost depends on how much support is necessary. At Drewberry™, for example, we have a fixed fee for providing ongoing support. Other firms may charge hourly, which can be useful if you only need minimal help.
IMPORTANT NOTICE ⚠️
All pension providers require employers to pay contributions to their employees’ pension pots. This is a non-negotiable cost for companies. Contributions must also be paid by 22nd of each month. Failure to do so could result in warnings or fines.
Fees For Employees
Employees eligible for auto-enrolment are liable for charges too.
Annual Management Charge
All providers tend to have an Annual Management Charge (AMC) to cover managing and investing the employee’s savings. This is either a set fee determined by the provider or a percentage of the value of the employee’s pension. The government has capped these charges at 0.75% for default funds. So, for every £100 invested, an employee would pay no more than 75p.
Pension providers will often take a percentage of what an employee saves into their pension every time they make a contribution. This charge can vary between providers, so it’s vital to check before you choose a scheme for your employees. Nest takes 1.8% for each contribution, for example.
Best Corporate Pension Providers For Financial Strength
Pension providers are assessed by credit rating agencies Fitch Rating, Standard & Poor’s (S & P), and Moody’s. Ratings depend on which investments will not default and produce a solid return.
Fitch and S & P use a letter system to rank providers. Moody’s rate using letters and numbers. These ratings are as follows:
Fitch & S & P
AAA – Companies of exceptionally high quality
AA – Still high quality with a low default risk
A – Low default risk, slightly more vulnerable to business or economic factors
BBB – A low expectation of default, business or economic factors could negatively impact the company.
Note: These can have a plus or minus alongside the letter grade.
BB – Elevated vulnerability to default risk and more susceptible to adverse shifts. Still financially flexible
B – Degrading financial situation, highly speculative
CCC – A real possibility of default
CC – Default is a strong probability
C – Default or default-like process has begun
RD – Issuer has defaulted on a payment
D – Defaulted.
When you compare workplace pension providers, look for ratings with an A grade. This signifies the provider is likely to be able to pay out. While these ratings are a good indicator of financial strength, it’s not perfect.
One provider could have different ratings from agency to agency. We provide the most recent financial strength rating in the workplace pension comparison table in the section below.
Frequently Asked Questions
What Makes A Good Workplace Pension?
A good workplace pension scheme should typically include the following:
A diverse variety of investment options to enable employees to choose how to invest their money
Flexible retirement options
Quality communications from the provider
Easy-to-use administration platforms
Commitment to UK pension market, adhering to automatic enrolment regulations.
Who Is the Biggest Workplace Pension Provider In The UK?
In terms of global accessibility to all employers, Aviva is one of the best providers in the UK. It provides services to over 33 million customers worldwide.
Which Corporate Pension Plan Gives The Highest Return?
Due to the nature of investing, it isn’t possible to confirm how much an employee’s pension savings will be worth when it’s time to retire. The value of a pension pot will depend on factors including:
How long the employee has been saving for
The amount of savings they have
Where and how contributions are invested
The level of risk involved.
Each employee can choose their own investments which will determine the return on their contributions.
Best Variety Of Investment Funds For Workplace Pensions
Workplace pensions with a variety of funds give staff flexibility over their investments. A diverse investment portfolio can help them save for retirement in a way that suits them.
The default fund in a workplace pension will tend to be index-linked and have low to medium investment risk. When an employee is first enrolled into the company pension they are enrolled into the default fund regardless or how old they are or their appetite for risk.
It is a fund that is designed to be a good fit for the 80% of people who don’t want to manage their pension investments.
Most default funds are lifestyle strategies, such as Royal London’s Balanced Lifestyle Strategy. This is designed to follow the employee’s journey to retirement, ensuring investment risk is reduced as retirement nears. It aims to protect the value of the pension.
Most providers will offer lifestyle or ‘target date’ options. But there are many different areas of investment. Some are more generic to suit all needs, while others are more specialist.
Some staff members may want to invest ethically, so an ethical fund is necessary. Most providers have at least one ethical fund available. Another type to consider is Sharia funds for any employees who are muslim and practise Islam. Sharia-compliant options invest according to Islamic law.
The best workplace pension providers have a range of funds for staff to pick from. Offering a scheme with a variety of investment options including ethical funds can be beneficial for your own ESG policy or B Corp status.
Best Workplace Pension Scheme For Accessibility & Ease Of Set Up
To save employers time and resources, some prefer to use a workplace pension scheme that isn’t complex to set up.
Setting up a pension can be time-consuming and requires plenty of admin. Pension providers are aware of this, and as a result, can help employers through the process. If you’d like to limit the stress of setting up a pension, look for providers that assist with set up. This can reduce your workload and let you continue running your business.
When comparing providers, the following questions can help to evaluate the scheme’s accessibility:
Does the provider’s website host a range of guides to help staff better understand their pension?
How comprehensive is the support? E.g. Do they host webinars?
How often are communications surrounding the scheme sent?
Best For Technology
Many pension providers provide employers and their employees access to online portals. The aim is to make it simple for everyone to access information about the scheme.
To make your scheme streamlined for your staff, a pension with online portal services is a good idea. Many of the largest pension providers offer these services. This can ease the pressure off you and support your employees.
Best Ways To Communicate Your Workplace Pension To Employees
One of the most important parts of setting up your workplace pension is communicating the scheme to your employees. Failure to do so effectively could mean that staff don’t find any value in the benefit. Our findings from the 2022 Workplace Pension survey revealed that poor communication of their pension scheme is a significant problem.
The best workplace pensions will offer support via guides, videos, and even webinars.
Education is a key part of the communications process. As 48% of respondents told us that they don’t understand the tax relief benefits of a pension, it’s clear that more awareness is necessary.
As an employer, you could be offering a highly valuable benefit to staff through their pension, yet they don’t know much about it. By promoting it and showing your employees the true value of a pension, they will engage with the scheme and feel more valued.
Finding the best workplace pension for your company can be challenging. There are many pension providers to choose from and options to consider. Below you’ll find the key information for each pension provider to help you compare.
Aviva was founded in 1797, but the brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC. It offers a multi-employer defined contribution master trust pension scheme for all types of companies to use.
Pension Plan Information
Type Of Scheme
Group Personal Pension or Group Self-Invested Personal Pension
Might not be suitable for small business due to the large scale of Aviva
280+ for Group Personal Pensions or 80 for Group Self-Invested Personal Pension
23 for Group Personal Pensions or 13 for Group Self-Invested Personal Pensions
1 – Aviva Pension HSBC Islamic Global Equity
Costs & Charges
Annual Management Charge (AMC)
Capped at 0.75%
0.15-0.16% for Stewardship fund
Set Up Cost For Employers
Monthly Fee For Employers
£30-£50 depending on scheme size & proposition
Financial Strength & Awards
Agency & Rating
S & P – AA- (Stable)
Pension Provider of the Year 2020 – Pensions Age Awards
Gold rating from Benefits Guru for Workplace Savings and Retirement proposition
Defaqto 5 Star Rating for Workplace Pensions and for Drawdowns.
Aegon was founded as Scottish Equitable in 1831 in Edinburgh and is still headquartered in the city. Dutch insurer Aegon N.V. bought a 40% stake in Scottish Equitable in 1994 and became a 100% stakeholder in 1998. It offers a defined contribution master trust scheme.
1 true ethical & 6 ESG, including RLP Sustainable Leaders, Sustainable World Trust, and Ethical Bond
1 – RLP/HSBC Islamic Global Equity
Costs & Charges
Annual Management Charge (AMC)
Capped at 0.75%
Set Up Costs For Employers
Monthly Fee For Employers
Can apply typically for schemes with low average contributions
Financial Strength & Awards
Rating & Agency
Moodys A2 (July 2022)
Money Marketing – 2020 Company Of The Year
2021 Financial Adviser Service Awards – 5 stars for Pension Service (13th year running)
2021 Financial and Technology Research Centre – Workplace Pensions – Gold & Auto Enrolment – Gold
Defaqto 5 star rating for Workplace Pensions, Personal Pensions and Drawdown.
Scottish Widows dates all the way back to 1812 with an original remit of setting up a general fund to protect the assets of widows and the female relatives of fund-holders. It has nearly 6 million customers, providing a range of pension and protection products.
Get Expert Advice And Set Up Your Workplace Pension
If you’d like more help with choosing the best workplace pension for you, don’t hesitate to get in touch with us. At Drewberry, our team has got you covered. Our pension experts can help you find the best workplace pension scheme for your company. We can take care of setting up your pension, enabling you to run your business without any extra stress.
To ensure your employees get the most out from their pension, you can call us on 02074425880 or email at email@example.com.
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