What to look for when choosing a pension for your business


How to do right by your employees while helping your business

Providing a pension plan to your employees can be a complex and time-consuming aspect of running a business.

To help you understand the process and better your chances of getting the right deal for your business and your employees, we have outlined some essential points to give clarity on pension providers and plans.

What is a pension plan?

There are different types of pension plans. One of the main types is a Defined Contribution Scheme, involving a workplace pension arranged by you, the employer. Group Personal Pensions (GPPs), fall under this category, meaning you choose a provider to set up the plan, and there is then a separate agreement between the provider and your employees.

With contributions from the employer, the employee and investment returns, each employee has a pension fund based at that provider.  

As an employer, you decide on the amount you make as a contribution to the employee’s pension fund, provided it meets the legislative requirements.

What are the legislative requirements?

The following outlines what is required by law, and should help you better understand what you’ll be required to do:

  • By 2018, all employers in the UK must provide a pension plan for their employees.
  • Each employer will have a staging date by which their employees will need to be automatically enrolled onto a pension plan. You will need to know details of your staging date before you embark on choosing a pension provider.
  • Every person in employment over the age of 22 and earning over £10,000 p.a will pay a certain amount of their income into their pension each pay day.
  • The employer  will also make a contribution to the employee’s pension each pay day and there is tax relief from the government.
  • This contribution comprises a percentage based on a government minimum, or otherwise negotiated amount.

This pension process is known as Automatic Enrolment. Employers must automatically enrol their employees and pay a minimum percentage of their qualifying earnings into a pension plan, as required by law.

  • Qualifying earnings are calculated from the amount the employee earns before tax (between £5,876 and £45,000 a year as of the 2017/18 tax year.
  • The employer must pay at least 1% of each employee’s qualifying earnings into the pension plan.
  • After March 2018, employers must pay a minimum of 2%.
  • From April 2019 onwards, minimum payments will increase to 3%.
  • These percentages may alter depending on changes to government legislation.

Understanding tax and pensions

  • Employers deduct the employee’s contribution from their net pay after tax, and before the employee receives pay. This contribution is then paid straight to the chosen provider.
  • The amount of tax relief will vary depending on income and the percentage paid into the pension plan each month.
  • Employers may wish to offer a salary sacrifice, or SMART (Save More and Reduce Tax) scheme to their employees. By an employee taking a salary reduction, the employer must match this amount in contributions to the pension fund. Through this scheme, less National Insurance (NI) is paid for both the employer and the employee as the salary amount used to calculate the NI contributions is reduced.

Contact an advisor who can assist you with information on how you can  offer a salary sacrifice arrangement for your employees.

Tips for choosing a pension provider

As an employer, you have many options available to you. With the right provider, you can tailor a pension plan that suits your business and fits your budget, while adhering to government legislation.

Here are our tips for making your  choice:

  • Research the market – go with a reputable pension provider to ensure you are compliant
  • Understand your employees’ needs – what do your employees need from their pension?
  • Consider your budget – what is the pension provider offering, how much will it cost, and how will it help you save over time?
  • Think about other services and employee benefits that could help you navigate your business towards a brighter future.
  • Ensure the plan caters for the long term – pensions are an investment, so you need to make sure that your business is set up for unforeseen circumstances with the provider. Ensure that the provider is authorised by the Financial Conduct Authority.
  • Know the legislation and the bare minimum of what is required by you as an employer – make sure that the pension provider can and will implement this.
  • Speak to an advisor about complex regulatory issues such as tax.
  • Stay tuned to the news and government guidance to check up on any changes or further developments.

Employee benefits

On top of a great pension, it could be in your interest to offer your employees a range of benefits in order to retain, recruit and motivate your employees. Elect employee benefits work as additions to the pension and can offer perks that employees can use now as well as in the future.

Some popular employee benefits include:

More information

For more information on finding the right pension provider for your business, or for help in refining your current plan, contact the pension experts at Elect.

Our friendly team can advise on ways to save money and ensure that you and your staff are getting a great deal.

Published date:  19 May 2017

This article has been written to help businesses understand what to look for when choosing a pension. It is for information only and is not specific financial advice. The value of investments can go down as well as up, so individuals can get back less than they invest. This article is based on our current understanding of legislation, taxation and HMRC practice which may change in the future.