Pensions

Having a ‘financially secure and comfortable retirement’ is an important goal for everyone which makes membership of a workplace pension scheme a worthwhile, and consequently popular, employee benefit. Although employees may struggle at times to make their own, personal, contribution, the key benefit for them is that their employer also makes a contribution which increases the value of their pension pot, and does so more quickly.

Offering membership of a workplace pension scheme was a benefit historically reserved for ‘white collar’ employees in medium to large private sector companies or for those working for public sector organisations. Times change: the Pensions Act 2008 introduced ‘automatic enrolment’, making membership of a workplace pension scheme a statutory requirement for many employees.

Phased in from 1 October 2012, auto enrolment brought a legal requirement for every employer to ‘automatically enrol’ every ‘qualifying worker’ into a workplace pension scheme. It’s a concept that has fundamentally changed workplace pension schemes, taking membership from being an ‘optional benefit for some’ to a ‘compulsory benefit for many’. For more information, please go to the Auto enrolment section of our website.

Offering your employees membership of a workplace pension scheme may now be a compulsory employee benefit but there’s still plenty of flexibility about how you do it and what you offer. There are several options as to ‘how’ you do it, although most SMEs will probably choose the benefits offered by either a group pension or master trust scheme. Providing you meet the legal minimum contribution requirement you are free to choose the level of your contribution towards your employees’ retirement plans.

In-house schemes

This is the usual method chosen by companies and organisations large enough to have sufficient resources to create a true, in-house, ‘company branded’ pension scheme.

Historically, ‘defined benefit’ (DB) pension schemes, sometimes known as ‘final salary’ schemes, were the most popular as the organisation benefited from any surplus profits from the investments – but they also had to accept the risk of investment loss. In fact, stock market turmoil leading to low investment returns and ‘quantitative easing’, coupled with rising life expectancy, caused ‘black holes’ in many DB pension schemes. The scale of the deficit was staggering, rising from c.£425billion in 2006 to c.£800billion in 2016, despite employers investing over £160billion in the schemes to shore them up. It’s no surprise that ‘defined contribution’ (DC) schemes, sometimes known as ‘money purchase’ schemes, which present significantly less risk to the employer, have become more popular in the last decade.

Apart from carrying the investment risk and needing the necessary resources to run the scheme, another disadvantage for employers is that they are entering into a potentially long-term (pension) contract with individual employees that may far exceed the employee’s contract of employment. Someone may work for you for just a couple of years – but that may result in you having a pension commitment that may start in forty years’ time and run for another forty after that.

Group pension schemes

Group pension schemes are the most popular type of workplace pension scheme as outsourcing enables the employer to offer a pension scheme to its employees without any of the investment risk, running costs or long-term contract issues.

Sometimes known as ‘contract-based’ schemes, group schemes are provided by a pension scheme provider but offered by the employer under their own name. In reality the scheme is actually a private pension scheme as the contract is between the employee and the pension scheme provider, not the employer. Different types of group pension scheme are available – personal pensions, SIPPs and stakeholder pensions – which mirror the range of private pensions available.

Apart from the advantages to the employer, there’s also an additional benefit for their employees as group pension schemes, even if they are set up for them by their employer, are usually much more flexible than true in-house schemes.

Master trust schemes

Although some employers have modified their existing workplace pension scheme to cover the statutory requirements of auto enrolment legislation, many others have had to create and introduce a pension scheme.

Many SMEs, particularly those lacking in-house resources or having few qualifying staff, have chosen to use a ‘multi-employer’ or ‘master trust’ scheme; a workplace pension scheme provided by an independent organisation and open to any employee from any employer.

Three such schemes are NEST, the defined contribution workplace pension scheme set up by the government; NOW: Pensions, a low-cost rival to NEST provided by ATP, a Danish retirement specialist that has run the Danish National Pension for more than 40 years, and the People’s Pension, a multi-employer scheme set up by B&CE in 2011 to help employers with auto enrolment.

Small Self-administered Pension Scheme (SSAS)

A SSAS (pronounced "sas") can be used to provide retirement benefits for a small number of a company’s directors, senior or key staff, the scheme generally being limited to a maximum of 12 members.

All of the scheme’s assets are held in the name of the trustees – there are no ‘individual pots’ for each member – each member is deemed to hold a proportion of the total. A SSAS can offer the employer increased flexibility about where the scheme’s assets can be invested and it can also borrow money, subject to terms and conditions, for investment purposes.

For more information about pensions, please go to the Auto enrolment and Pensions sections of our website.

How can One Financial Solutions help you?

As a firm of independent financial advisers we can provide you with impartial advice to help you design and create an employee benefits’ package with a competitive edge; one that can make a real difference both to who you recruit and who you retain.

We’ll help you plan an appropriate strategy, recommend the best products from across the whole of the financial services’ market and help build and develop the package you need. If you already have an employee benefits’ package, we’ll review it and recommend changes we think could turn it into something hard to refuse. We can provide an annual review to ensure your employee benefits’ package remains fresh and competitive, grows in value as your employees’ careers develop and stays within your budget.

So, if you’re looking for help with any aspect of your employee benefits’ package, please call us on 020 3714 9565 or ask us to call you by sending an email to admin@onefinancialsolutions.co.uk.