Under the Pensions Act 2008, every employer in the UK must put certain staff into a workplace pension scheme and contribute towards it. When the roll out of automatic enrolment began in October 2012 the number one priority for most businesses was to have a workplace pension scheme in place that met the minimum criteria for automatic enrolment.

As companies grow and change and the pension market evolves, a growing number of employers are looking to review their current workplace pension scheme to ensure it’s of good quality and meets their needs, as well as those of its workforce.

The best way to review the quality of an existing workplace pension scheme is to speak with a professional advisor who can help undertake a more detailed assessment of an existing scheme. This will determine if the current arrangements are fit for purpose and provide the best value for money, options and support for your workforce or whether an alternative pension scheme provider should be considered.

These are a number of key areas to focus on when monitoring and reviewing your pension scheme:

Value for money – The costs and charges taken from members’ savings should be competitive when considered against the benefits and services that the members receive. Employers should compare costs and charges against other schemes that offer similar services as the underlying charges can have a significant impact on the long-term value of workers retirement savings.

Pension provider performance – Employers should monitor the pension provider’s services to ensure that they are of a good standard and receive regular updates on issues such as payment and investment of contributions, member movements such as retirements, transfers out, deaths and any death benefits.

Performance of the default fund and other investment choices – Employers should regularly review the investment strategy and the default investment fund performance to ensure they meet the needs of scheme members and the ongoing requirement’s for automatic enrolment. Consideration should be given to the fact that more and more workers are interested in having access to a wider range of funds to invest in including ESG funds (Environmental, Social, and Governance).

Late and inaccurate employer contributions – Pension providers must monitor whether employers pay contributions in line with the due date set out under the payment schedule. If there are late or inaccurate employer contributions, employers should ensure that the provider takes appropriate steps to resolve these.

Communications – Employers should consider whether the provider can give access to resources that enable the workforce to stay engaged and informed about their pension scheme. Resources could include guidance material, online tools and mobile Apps.

Retirement options and costs – Having a scheme that provides an extensive range of retirement options for an employer’s workforce is extremely important to maximise the choices available at retirement and reduce the fees and charges that may apply when taking retirement benefits.

Which tax relief method is best for your staff?

Tax relief arrangements are another important factor when reviewing a pension scheme for automatic enrolment. It’s best to choose a scheme that uses a tax relief method that suits the workers circumstances.

There are two ways that workers can get tax relief on what they pay into their pension;

Relief at source: You can tell if it’s relief at source if the pension provider has to claim the tax relief from HMRC.

Net pay arrangements: If you need to calculate tax on the pay that is left after they have paid into the pension, then the scheme uses net pay arrangements.

A scheme can only use one method for all your workers, and this will affect lower or higher paid staff in different ways. Both methods of tax relief have their benefits, but it’s important for employers to check that the method the scheme uses is best for their workers, so they are not disadvantaged.

Staff who don’t pay income tax

If an employer has staff who don’t pay income tax, they will only get tax relief if you have a scheme that uses relief at source. If you have a scheme that uses net pay arrangements, these staff will not get tax relief and will pay 20% more for their pension.

Some schemes that use net pay arrangement may have lower member charges for your workers so this will need to be consider when completing a review.

If an employer uses salary sacrifice to manage pension contributions, staff who don’t pay income tax won’t get tax relief whichever tax relief method your scheme uses.

Staff who pay tax

If staff pay income tax, they will get tax relief whichever scheme is chosen. However, if there are higher and additional rate taxpayers and the scheme uses relief at source, they will need to claim their full tax relief by completing a tax self-assessment.

Salary Sacrifice

A growing number of employers are looking at the option of introducing salary sacrifice into their businesses as part of their benefits offering.

Salary sacrifice is an arrangement employer’s may make available to employees – the employee agrees to a reduction in earnings by an amount equal to their pension contributions.

And in exchange, the employer then agrees to pay the total pension contributions. So, any contributions paid to a pension provider will be treated as employer only.

Using salary sacrifice means that the employee and the employer pay less National Insurance contributions. Employers may decide to maximise the amount of pension contributions by adding some or all of the savings they make in lower employer National Insurance contributions to the total pension contribution amount they pay for an employee.

If salary sacrifice is to be introduced by an employer, it is important when reviewing an existing scheme or choosing a new scheme that the pension provider and payroll provider have the expertise in this area and can provide the necessary support to implement any changes without disrupting the business.

Monitoring your workplace pension scheme

Once you have conducted your workplace pension scheme review, if the conclusion is to remain with your existing provider then you should consider introducing the monitoring and review of your scheme on an annual basis to ensure your scheme continues to be well run.

There can be a number of benefits for you and your workers if you take a more active role in your scheme. These include:

  • early identification of administration problems
  • better value for money
  • improved employee engagement and awareness of employer contributions
  • improved member understanding of their retirement savings
  • fewer member complaints.

Taking a more active role in your scheme does not need to be complicated, time consuming or expensive especially if you have the help of a professional advisor.

It can reassure you and your employees that your scheme is being well run for your workers. This can help prevent problems developing in the future and provide a collective voice for workers that experience any problems with the pension provider’s services.

You are likely to be asked questions about the scheme by your workers, so being closer to the scheme will help you describe it to them. If you ensure your scheme is run as efficiently as possible you could potentially enhance your workers’ eventual retirement fund.

This may even help with employee retention.

Switching your workplace pension scheme

If the decision is to switch your existing scheme with a new workplace pension provider, then the process can be simple and straightforward especially if you have the support and guidance of a professional adviser.

The 4 main steps to switching your workplace pension provider are:

  1. Design a scheme to suit your needs and requirements
  2. Select your new provider and receive terms from them
  3. Contact your existing provider and inform them you are changing schemes
  4. Engage your employees and communicate the changes and the benefits for them of the change in workplace pension scheme

If you do wish to review or switch your existing workplace pension scheme, we’re here to help

As a leading workplace pension specialist, Workplace Advice Group have helped 1000’s of employers review their workplace pension schemes each year through our annual client Pension Review meetings.

More recently we have helped a growing number of employers to review their existing arrangements and where appropriate, we have designed and implemented new workplace pension schemes to provide enhanced features, benefits and improved value for money.

If you are thinking about reviewing your workplace pension scheme or switching providers and would like some help and support, then we would be delighted to hear from you.

To find out more about how we can help please contact us on 01782 269787 or email us at introductions@workplaceadvicegroup.com