Choosing a workplace pension scheme

The introduction of workplace pensions and the automatic enrolment of employees has introduced new costs and administration for small businesses. There are an increasing number of providers, but who should you choose?

All businesses with eligible workers will need to automatically enrol them into a workplace pension scheme, even the smallest of employers are not exempt from workplace pension duties. Even when a worker is not automatically enrolled, they may have the right to opt in or join your workplace pension scheme.

In this guide we explore some of the key points to consider when researching which pension scheme to use.

Give your current provider a call to see if it is compliant with automatic enrolment. Unfortunately many pension schemes, such as stakeholders schemes, are not compliant which means you’d need to setup a new scheme. You also need to check that your payroll is compatible with your scheme.

Understand the costs

Pension companies have to make money so inevitability there will be charges. Each provider has different fee structures so it pays to do some research to get an idea of what is best for you and your employees.

Pension provider fees and charges to be aware of:

  • initial setup fees
  • monthly or annual administration fees
  • exit fees for changing providers
  • percentage fees for managing savings (deducted from employees contributions)

Don’t forget that on top of fees charged by the pension provider, other costs to be aware of include:

  • your contributions as an employer to your employees pensions each pay period to meet the minimum legal requirements set by the Pensions Regulator
  • monthly administration fees that we must charge to support with ongoing administration and compliance

Payroll compatibility

Statutory communication and submission of pension deduction data to the pension provider each month adds a significant workload to any business. It is therefore crucial your current software for payroll supports your pension provider.

inniAccounts currently supports the following providers with more coming online soon:

* If you select The Peoples Pension please get in contact – we can open a scheme for you and arrange a discount off their initial set up fee.

Tax relief methods

There are two ways that pension providers handle tax relief:

  • Relief at source – employers deduct 80% of the employees pension contribution from their tax home pay. The tax relief (20%) is then claimed back from HMRC by the pension provider each month.
  • Net pay arrangements – pension contributions are collected before income tax.

Every pension provider is different so you need to check which method is best suited to your business and employees. For example, relief at source is not the best option if your employees don’t pay income tax. You can read more about the differences here.

Employee experience

The scheme you choose will impact your employees retirement but also their experience of looking after their pension pot.

Not only are charges on employees savings important, but also how easy it is for them to understand and look after their pension. This isn’t to say they will have to get involved in managing their pension, but if the provider does a good job of making it easy for you as the employer, chances are your employees will also have a good experience when they need to take action.

Important notes

This information has been provided for guidance only. There are other pension schemes available that are not listed here and we cannot recommend or endorse any particular pension scheme or organisation. The Pensions Regulator provides further useful information to help employers find and choose a pension scheme.

Pensions are a regulated activity and as accountants we are not permitted to provide advice on the suitability of pensions or investments for individuals. We recommend that you take appropriate guidance from a qualified Independent Financial Adviser before selecting a pension scheme. You can use the Money Advice Service retirement adviser directory to find an adviser who can help you choose a pension scheme. You can also use the FCA register to check if an adviser is authorised by the Financial Conduct Authority.