Better workplace pensions for employers
When considering a workplace pension, the most important aspect is the experience for employees. Consider areas such as retirement options, default funds and alternatives, customer service and communication language. What are my businesses legal duties? Every employer must provide a workplace pension to its employees. In addition to this, there are further legal duties: Monitor the ages and earnings of your employees. This is to identify whether employees within a certain criteria should be enrolled into the pension scheme.
From the day the meet the eligible worker status, you have six weeks to enrol them into the pension scheme and communicate with them. Anyone who is not eligible to be automatically enrolled into the pension scheme can ask to join.
The employer has a legal obligation to adhere to the request. Likewise, employees can choose to leave the pension scheme. If an employee requests to leave the pension within one month of being enrolled, all contributions must be returned, this is known as opting out Employers must keep records for a specified length of time which include: Pension scheme reference or registry number, six years Records to show when money was paid in, six years Requests to join or leave the pension, six years for joiners and four years for leavers Names and addresses of those put into the pension scheme, six years Declare compliance to The Pensions Regulator when the pension scheme is first set up.
This means re-enrolling those who have left the pension scheme who meet the criteria. Employers will need to re-declare their compliance to The Pensions Regulator Not complying with legal duties could mean The Pensions Regulator takes enforcement action in the form of a statutory notice, fine or prosecution with the maximum punishment of two years in court.
Workplace pensions Deciding if a workplace pension is right for you Your situation will influence how a pension from your employer can benefit you or if you need to opt out. Find out how already having a pension, being in debt and your age may affect your decision to stay in or opt out of a workplace pension.
How saving into a workplace pension affects you Find out what saving into a workplace pension means for your financial situation. Money Helper - Workplace pension contribution calculator Already have a personal pension If you already have a personal pension, you need to think about what you can afford and compare the benefits of your personal pension against the workplace pension.
The Pensions Advisory Service might be able to help you. The Pensions Advisory Service is an independent, non-profit making organisation which provides independent, free advice about pensions. Pensions Advisory Service Debt For many people, paying into a workplace pension is a good idea, even if you have other financial commitments, such as a mortgage or loan.
This is because you could benefit from contributions from your employer and tax relief from the government. Over time, this money adds up and can grow. You should make sure first that you can afford to meet your other commitments. A workplace pension is one way to provide an income.
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Have a board of trustees. Also, to ensure that trustees have freedom to switch pension provider where it is in members' interests. If you're unclear about any of the terms used, please see our Jargon Buster. There are other requirements for defined contribution plans: From 6th April Charge cap All qualifying pension plans must have a default arrangement fund or lifestyle option where the total charges paid by the members, excluding transaction costs, do not exceed 0.
This is commonly referred to as the 'charge cap'. Individual members are still able to choose an alternative investment strategy and add on services. The charges for these may be greater than the charge cap. Independent Governance Committee For members of contract based qualifying plans, an Independent Governance Committee IGC has been introduced to ensure plans offer value for money for members.
The requirements for contract based plans also apply to trustees of trust-based plans. Removal of commission Between April and April , commission could only continue to be paid in respect of a pension scheme if this didn't result in charges exceeding the charge cap. This requirement applies only to qualifying plans.
Active member discounts Between April and April , discounts for contributing members were allowed to continue within a qualifying plan, provided this did not result in charges exceeding the charge cap. From 6th April Active member discounts Active member discounts are banned within qualifying pension plans.
It is prohibited to offer a charging structure that favours contributing members compared to non-contributing members. Removal of commission Commission payments to advisers for qualifying pension plans must stop. It is, however, possible for the employer to pay directly for financial advice.
Greater transparency Greater transparency of costs and charges. Amongst employers, costs were conceptualised as either the financial cost of the employer contribution or the administration costs associated with providing a pension for employees. Administration costs also included time and resource, as well as further financial costs with setting the scheme up or if employers chose to outsource.
These were usually smaller employers. Costs often varied according to whether changes were required and the functionality of the system. Changes could include hiring new staff or occurring as a result of changes to AE , as these all create extra work.
Re-enrolment [footnote 14] was also seen as an additional admin burden. These were primarily large employers. Sometimes they were described as overall employee costs, and accounted for in this way. We do the usual. Generate enough sales to cover it. Seen as ongoing cost of business. In relation to administrative costs, these were often absorbed by doing things in-house.
Whether employers decided to outsource support was often determined again by the complexity associated with pensions or their understanding of them. For some smaller employers, costs were absorbed by doing as much in-house as possible. This was effective as a financial cost saving measure, but could be a trade-off on time or resource, such as spending time understanding what needed to be done.
For those where increases could be harder, they had a number of mitigations in place. For example, practical responses included increasing prices and rebalancing other employee benefits. But will we? Would this stop us employing people? Employers articulate having more limited cash-flow for themselves, and referenced employees being more focussed on take-home pay, influencing their pension saving.
Increasing consumer prices was one response employers said they could use to mitigate higher pensions costs, although there were concerns about industry price caps or remaining competitive, which would mean this could only be utilised to a certain degree. Some larger employers raised other changes they would make in response to higher pensions costs. For example, by rebalancing other benefits within their package in order to comply. Employers that were already paying above the employer contribution minima were not concerned by the suggestion of higher pension costs, as they often assumed it would not make their pensions more expensive than they were now, or were confident they could accommodate an increase.
For micro and small employers, other methods for absorbing potential increases included not increasing wages in line with how they would have done otherwise, or not hiring new employees. This chapter explores in section 5. Primary factors included time and financial costs to the employer, the reputation of the pension provider and the investment security of the scheme.
Secondary factors included value for members and advice or recommendations from intermediaries. Notably, only a minority of employers had switched their pension provider. Most employers had not considered switching until they took part in the research.
Consequently, choosing and switching was often conflated within the interview as the employers mainly described their decision making processes when initially choosing their pension scheme. This factor was evident across the employers, with variations of it ranging from micro to large employers. The time cost savings for us is very valuable. Although it was not very common, for some small and micro employers, this limitation was fundamental, and so time or financial costs were the only factors they considered when initially choosing their pension scheme.
I joined [provider] with my micro business because it was free. That was the only factor I took into account at the time because it was an extra burden and massive increase in cost. Specifically large employers considered value for members to be an important consideration. Though value for members will be explored in further detail in section 5. Here, service included provider communication, support from the provider, and the flexibility of the scheme.
Employers of all sizes frequently said they had sought out advice or recommendations from intermediaries such as accountants or financial advisors when initially choosing the schemes, and also considered their advice when they were switching or considering switching schemes.
This research found that manual sectors [footnote 17] tended to say more often that they considered advice or recommendations from outside bodies; however, they did not elaborate on why this was the case. We wanted a provider that was going to be a balance of reputable, big and competitive and we took advice and we found current provider. Where employers predominately micro employers had little to no involvement with choosing their workplace pension, it was often because they were delegating their pension responsibilities to an intermediary, such as accountants.
As a result, these employers were more likely to have indifferent attitudes, with some suggesting they had chosen their pension provider based on what was the easiest option at the time. From employer perspective was frustrating in terms of level of communication we had with them and if they could resolve queries etc. Some also noted that until there was enough of a difference in the performance of a potential scheme, they would wait to switch.
Most employers either specifically suggested or implied that their reluctance to switch stemmed from the opinion that switching was incredibly difficult to do because of the resource implications time and financial costs.
Happiness with a scheme was a combination of the cost effectiveness of the current scheme, and effective customer service from the pension provider, also discussed when considering value for members in section 5. In such instances, employers focused more on the time investment rather than the financial cost of switching. In comparison, predominately micro employers often did not consider themselves responsible for decisions on switching schemes as they had often delegated responsibilities to their accountants.
Consequently, they did not seem to have considered reasons for switching or staying in their current scheme in much depth. In these instances, financial service providers, like accountants, acted as a gatekeeper to pensions schemes, and therefore, micro employers relied on them more heavily.
This finding is similar to qualitative research with new-born employers which found that it is common for smaller employers to engage in limited information seeking behaviour when setting up a pension. Usually, smaller employers will seek out just enough information for compliance, and little beyond this. Employers who were growing in size expressed the notion that their current provider may not be suitable for them once they had acquired new employees.
Although these employers did not expand on this further, it is possible that growth is an enabler to switching to a different pension scheme or may make switching necessary. These employers may consider switching, or have switched, because they now have access to more funds or support to be able to investigate which provider is best suited to their needs. Much in the same way that time costs were a primary factor for decision making, employers indicated that if the cost of dealing with the admin burdens that are associated with switching was higher than the cost and difficulty associated with switching, then the employer would switch.
Employers noted that dissatisfaction with the scheme could, and would, affect both the employer and the employee. Here, employers focused on the need for greater flexibility for their employees, or needing a more user-friendly provider. Financial costs, though important, were not the biggest consideration for switching as employers who had switched noted that there needed to be a balance between the financial cost for them, and the value their employees received.
When an employee left the business, they were having to pay an admin charge to move their pensions. So we looked for a more user-friendly organisation that worked with our transient workforce. It was a major issue at the start. And they had a black out for 2 or 3 months in terms of the IT, so that placed quite a burden on us. Literature regarding value for money in Defined Contribution DC pension schemes suggests that there are 3 key elements that support value within pensions: investment performance, customer service and scheme oversight, and the costs and charges.
It is important to note that measuring value is a difficult process, and it often varies between the scheme, the members and over time. However, these employers indicated that value for members was considered in very similar terms: Investment performance Service support from the provider including communication, administrative support from the scheme and ease of use Flexibility Overall, most employers across all sizes believed that value for members was a priority when considering switching schemes, and they were likely to show this through their actions or views about the benefits of pensions.
The amount of resource and knowledge accessible to the employers often impacted by size of employer seemed to affect the degree to which employers could offer and prioritise value for members, in its array of benefits. Predominately large and medium employers considered more than just investment returns and tended to focus on the employee benefits that providers could supply. Some large employers, for example, hired advisors to provide them with the knowledge to choose a pension with the best value for their employees, while others looked specifically for providers that could offer value.
Although these employers were still paternalistic in their approach, there was an indication that they felt a moral obligation or responsibility to provide value for their employees via investment returns. In earlier sections, this report noted how small and micro employers tended to have less knowledge and resources when it comes to pensions as a whole, with micro employers predominately using intermediaries such as accountants to provide support or take over pension responsibilities.
As such, because they are less sure themselves, these findings suggest smaller and micro employers want to make sure their pension responsibilities are fulfilled but are unsure how they can provide further value past secure investment returns and, therefore, tended to focus on investment performance when considering value for members. Just chose a big government backed scheme because they should be less likely to go under.
This was the least prevalent of the 3 views. Although this employer specifically referenced how the pension system links with the payroll system, an issue also sometimes raised by other employers, administrative concerns were the main reason why employers did not consider value for members to be a priority. In addition, there was an indication that the lack of knowledge some small and micro employers had around pensions in general affected their attitude towards value for members.
As they tended to be less engaged, often because their accountants handed pension responsibilities, these employers did not often consider value for members. There are 2 ways employees can receive tax relief on pension contributions: Net Pay Arrangements NPA and Relief at Source RaS Overall, the majority of large, medium and small employers said they had, or would, consider the method of tax relief that a scheme operates when they were choosing, or if they were to consider switching pension providers.
Meanwhile micro employers predominately were unsure about whether they had considered it or not, and gave no indication they would consider if they were to switch. When a specific method of tax relief was mentioned, though reference to a specific method was minimal, it was a fairly even split between favouring NPA and RaS.
Under NPA schemes, employees earning below the Personal Tax Threshold would not currently receive any tax relief, while those under RAS schemes would get tax relief at the basic rate of income tax. This anomaly is due to be resolved in the future, as seen in the pension tax relief administration call for evidence response. Although the majority of employers said they had or would consider the method of tax relief, the responses specifically naming the benefits and implications of the 2 methods came primarily from the large employers.
This is likely due to larger employers having in-house staff who are responsible for understanding this aspect of pensions. It is also possible that the role of the interview participant impacted their ability to discuss these benefits or implications. Comparatively, only a small number of employers said they had not considered tax relief. These employers tended to have a lack of awareness regarding the role of tax relief when considering workplace pensions.
Often this was due to lack of knowledge on the subject, or in the case of some micro and small employers, because pension responsibilities were outsourced and so they were had not personally considered the method of tax relief their scheme operates. It is important to note that employers tended to use fund and provider interchangeably; however, this research has attempted to draw out findings where this distinction was made clearer. Currently, employers are required to continue paying into an alternate fund if it is offered by the same provider currently used by the employer for their workplace pension, but do not have to continue paying their contributions if the employee chooses to move providers.
This research found that overall, medium, small and micro employers often said they would continue to pay their contributions into an alternative fund or provider, while large employers tended to say they would not pay into an alternative provider. Large employers in particular tended to understand they did not have any obligation to keep paying contributions if the employee switched, and so predominately said they would not pay into an alternative provider.
When compared to smaller employers, large employers tended to have a greater selection of funds for their employees to pay into. As such, they often cited their larger selection of alternative funds that employees could choose from as a reason for why, as larger employers, they would not pay into an alternative provider. Typically, large employers felt their increased fund options was optimised for the most employee value and benefit.
It was also the case that in order to attain the matched additional voluntary contribution benefit, employees would need to be with their chosen provider. Additionally, large employers particularly considered the admin burdens associated with paying into an alternative provider.
While not explicitly mentioned, it is possible that due to the nature of large employers hiring far more employees than smaller employers, it is likely to be a greater administrative burden to offer to pay into an alternative provider than it might be for smaller employers. In comparison, medium, small, and micro employers often said they would pay into an alternative fund or provider. The main reason given was that employers tended to believe that fund or provider option was, and should be, a choice for the employee to make.
This was either because it was personal to the employee, they may want the option of paying into a fund or provider with better investment performance, or so that employees could be empowered to work on their financial knowledge. Employers mentioned the process should be an easy one to do; for example, the administrative burden should not be too high or taxing on the employer, or if their employees properly understood the decision they were making. In some instances, small employers felt they had a moral obligation to continue contributing, while some micro employers believed they had a legal obligation to pay into both an alternative fund and an alternative provider.
In cases where the employer had not yet had to consider whether they would pay into an alternative fund or provider, employers often commented that they would need to attain guidance about the option from colleagues, or that they would need to discuss the option with the employees in detail first.
It is important to note that these answers were given hypothetically in the interview, as the situation had not occurred. Small pension pots Due to AE being extended to lower earners and people who move jobs frequently, there has been a rise in the number of deferred pension pots i. This chapter explores in 6. Option 2 — the pots follow the employee to their new employer and are added to that pension scheme.
Therefore, their concerns tended to focus on how simple or easy the process of consolidation would be. Some employers also suggested that there may be an increased potential for error to occur if all pots were consolidated, whether or not administration was done by a government approved scheme, or the employer. Employers also expressed concerns about the logistical process of gaining consent from employees before pots were consolidated.
Questions that were frequently asked included how it would be done, who would be responsible for gaining the consent, i. When does it happen? Is it automatic? Employers across sizes and sectors were inclined to want an option that would provide them with the least amount of administrative burden. Employers suggested costs of option 2 would include: Administrative burdens A discomfort with providing financial advice Losing benefits from previous schemes Like option 1, employers expressed concerns around the time costs due to administrative burdens.
Though not expressly stated, employers seemed to believe that they would be responsible for the admin, and that this could impact their time costs as they would be constantly handling different schemes as employees moved jobs.
Many employers also expressed concern or discomfort when saying that employees would need financial advice on consolidation. Although they did acknowledge that advice would need to be given, employers did not seem comfortable with the idea that they may be the ones responsible for providing financial advice on consolidation. That might not be the right outcome for all individuals. Additionally, employers felt that option 2 would provide greater visibility.
Here visibility often linked with age; for example, employers felt that if the pots were more visible then it might prompt younger employees to engage with and be more proactive about their pension saving. Visibility was also mentioned in relation to new starters; if pots were more visible, new starters would have clearer information about their pensions, and would therefore be able to make informed decisions.
I think this is where education comes into play. Employers should empower their employees to understand their pension pots and have an understanding that they can transfer. These included questions raised on the logistics, and the implications of consolidation. Employers also wondered how consolidation would occur and how pots would be linked to the employee; some believing it should be easily traceable or linkable via national insurance numbers.
Employers were also concerned about the time cost of either option; more specifically how much time would be needed to implement the scheme, and whether the system and administration would be easy to use. Employers also wondered how the administrative fees would affect both themselves and their employees if pots were consolidated.
Though not stated, it is possible that fees would be greater for option 2, and pots would continually be transferred as employees started a new job. Employers asked whether a fee would then have to be paid each time this occurred?
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Auto Enrolment and Workplace Pensions - Advice to Employers
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