Who Are Scottish Widows?
Scottish Widows was set up in 1815 to protect the women who lost their husbands, fathers, and brothers in the Napoleonic War. Since, it has been supporting its customers to make the most of their financial future.
It offers a wide and flexible range of workplace pension solutions designed to meet the needs of different businesses. Scottish Widows Pension service has a Defaqto Rating of 5 stars and recently won the Professional Pensions DC Master Trust of the Year award.
Scottish Widows Workplace Pension Overview
A Scottish Widows corporate pension scheme is a defined contribution master trust. It’s a tax-efficient way for employers to help their employees save for retirement.
As it’s a master trust, it’s used by multiple employers at the same time. The governance, trustees and regulatory responsibility are all centralised. Due to this, costs can reduce and the process of setting up a workplace pension is easier for employers.
Which Employers Might Consider A Scottish Widows Workplace Pension?
A Scottish Widows Master Trust workplace pension is suitable for medium-to-large size businesses. It ensures employers meet their legal duties and allows staff to save for retirement.
To be eligible for automatic enrolment, employees must:
- Be over 22 years old but below State Pension Age
- Work in the UK
- Not be in a qualifying workplace pension already
- Have an employment contract
- Earn over the required minimum amount.
Non-eligible employees can still ask their employer if they can join the scheme.
How Does A Scottish Widows Corporate Pension Work?
The employer and employee both pay monthly contributions into the employee’s pension pot. These contributions are a percentage of the employee’s income. Scottish Widows pensions work as follows:
- Employee is automatically enrolled onto the employer’s scheme on their first day of work
- Both employee and employer make monthly payments into the employee’s pension pot
- The employee receives tax relief on top of the contributions (if they pay tax)
- Pension contributions are invested
- The employee can access their Scottish Widows pension once they reach 55 years old.
Who Can Contribute To Scottish Widows Workplace Pension?
Most people join a Scottish Widows pension through automatic enrolment.
Pension contributions come from three parties: the employee, the employer, and the government. The employee and their employer must pay the minimum contributions set out by law. The government then tops it up with tax relief.
Contributions can be higher than this if they want, but this is not obligatory.
What Are The Scottish Widows Pension Charges?
Employees will pay a charge depending on the type of payment made and their investment fund. Each investment fund has a different Total Annual Fund Charge (TAFC).
Let’s say an employee’s pension is worth £10,000 throughout the year. If the yearly fund charge is 0.75%, for example, the charge for the employee would be £75 a year. This is normally deducted directly.
How Much Can Be Paid Into A Scottish Widows Workplace Pension?
The following contribution amounts were put in place by the government. By law, employers and employees must pay a minimum.
Employer Pension Contributions
Employers must contribute at least 3% of an employee’s salary to their pension.
It’s down to the employer whether they make contributions above 3%. Some offer higher contributions as part of a corporate employee benefits package.
Employee Pension Contributions
The least an employee must contribute is 5% of their qualifying earnings. But the employee can contribute more if they wish.
The highest possible contribution depends on the limits set by the employer or their annual allowance, whichever is lower.
Qualifying earnings are an employee’s income before tax and National Insurance deductions. This includes:
- Salary or wages
Employees will get 1% tax relief from the government on top of their contributions.
Does Scottish Widows Allow Employees To Transfer Other Pension Pots Into The Scheme?
Yes, they can transfer other pension pots into their Scottish Widows’ scheme. While the provider doesn’t charge for this, the previous provider may ask for an exit fee.
Employees can also transfer out of a Scottish Widows pension fund at no charge. They will need to check that the new provider accepts pension transfers and whether there’s a set-up cost.
When Can Employees Access Their Scottish Widows Pension?
Once an employee turns 55, they can access their Scottish Widows pension pot. They can choose to take some or all of it. They can also leave it untouched to allow the pensions savings extra growth.
When an employee takes their pension, 25% of it is tax free. The rest is taxed as usual if the member is liable for tax.
What Happens If An Employee Leaves?
If an employee leaves, the employer must no longer contribute to their pension. They can either contribute to it themselves outside of employment or transfer it to a new scheme.
Where Are Contributions To Scottish Widows Invested?
Most employers choose the default fund when setting up a Scottish Widows’ scheme. This is the Balanced Pension Approach. After the first contribution, employees can switch to another investment if they wish.
These are the employee’s options:
- Remain in the default fund
- Choose a different pension investment approach based on their attitude to risk
- Select from Scottish Widows’ range of investment funds.
Scottish Widows Pension Funds
Scottish Widows invest contributions into one or more investment funds. These are overseen by a fund manager who chooses the type of assets the fund will buy and sell.
The provider offers four asset classes that carry different risks:
- Money market investment
Cash in a building society or bank account, or short-term loans used to raise cash
- Equities (shares)
Stakes in companies where growth will depend on company performance
Pension contributions invested in commercial property for both capital and rental growth
- Bonds and gilts
Loans made to the government or UK businesses, which in return will pay a pre-determined interest rate until an agreed date.
Scottish Widows Risk Fund Profiles
Scottish Widows offer a choice of three investment risk profiles. These work similarly to each other. But the key difference is the degree of risk when trying to help an employee’s pension pot grow.
Each risk profile aims to lower the risk the closer an employee is to retirement. The three risk profiles are:
Cautious Pension Approach
This type experiences fewer and more modest changes in value in comparison to others. It will have a much lower growth potential.
Balanced Pension Approach
A balanced investment approach experiences moderate increases and decreases compared to other profiles.
Adventurous Pension Approach
An adventurous investment approach tends to experience the most changes in value. While it offers great potential for the highest growth long term, it could also make big losses.
These approaches aim to grow savings as much as possible and match the employee’s level of risk. Near retirement, the approach changes from growth potential to protecting the pension value.
Who Manages The Scottish Widows Pensions Fund?
An independent board of trustees oversees the Scottish Widows workplace pension scheme. The role of the trustees is to help employees get the best return on their savings.
The trustees invest according to:
- The particular risk approach the employee has chosen
- How close they are to retirement.
They will also check it often to ensure a good return. Should there be a change in value, the board will adjust the pension funds to better suit the employee’s life stage. They begin to evaluate the impact around 15 years pre-retirement to mitigate any risk.
The board will then begin to replace higher-risk investments with lower risk ones. This reduces growth potential, but protects the pension’s value.
Is Scottish Widows The Same As A State Pension?
No, a workplace pension with Scottish Widows is separate from the state pension. The employee and employer pay contributions instead of taxpayers.
Can Employees Opt Out Of A Scottish Widows pension?
Employees automatically enrolled can opt-out if they don’t wish to be a scheme member. If they do want to leave, they must inform their employer, who will let them know who they should contact. The employer cannot handle the opting-out process on the employee’s behalf.
If an employee opts out, you must auto-enrol them every three years if they’re still eligible.
What Happens To A Scottish Widows Pension If An Employee Dies?
Staff have to nominate someone who will get their pension if they die before they retire. This beneficiary nomination form tells the provider where the employee’s money should go. But Scottish Widows are not obliged to follow it. They may pay out to a different beneficiary if they feel necessary. This can depend on the employee’s death circumstances and how up to date the nomination form is.
How Does A Scottish Widows Workplace Pension Compare?
Advantages Of Scottish Widows Workplace Pensions
There are many advantages to the Scottish Widows workplace pension. These include:
No Transfer Fees
If your employees want to move other pensions they have into the scheme, they can do so with no charge. They can also move to another pension provider with no charge.
Easy To Use
Scottish Widows provides an easy-to-use digital service for both employers and employees. For employers, it offers the flexibility and control to manage their scheme with ease. Employees can use the service as a quick and easy way to view their pension online.
Choice Of Investment Options
There’s a choice of ready-made investments and bespoke investment options. So you and your employees can pick funds that suit your particular needs.
Having trust-based options with an independent board of trustees and experienced strategist committee can help ensure robust governance and good outcomes for your employees.
It can also provide extra security to your employees as their pension will be ring-fenced. This means that if your business runs into difficulty, their pensions are safe.
Disadvantages Of Scottish Widows Workplace Pensions
Pension Fund Charges
Unlike other providers, Scottish Widows aren’t as clear about their fund charges. Information isn’t easily accessible.
There is an annual management and service charge for employees to pay in this scheme.
When picking a workplace pension scheme, it’s important to compare providers as options and fees vary.
Best Alternatives To A Scottish Widows Workplace Pension Scheme
If you’re looking for a company pension for your team, you’ll find a range of options available. Each pension provider will offer different funds, tax relief models, and employee criteria.
So, to ensure you find the right scheme for your staff, it’s a good idea to compare your options to see which is the best fit.
Alternative Workplace Pension Providers
- Nest (National Employment Savings Trust)
- NOW: Pensions
- The People’s Pension
- Royal London.
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