Choosing the best workplace pension for your company can be a difficult decision. There are many contributing factors, including your industry, the cost, and how it’s taxed. For example, some providers may offer salary sacrifice to benefit your company and staff.
A poorly chosen workplace pension may result in less savings for your employees. It could also cost your business more in administration fees. So, it’s important to get your workplace pension scheme right. We’re here to explain what you need to consider to pick the best pension provider for your business.
As we mentioned, there’s plenty to consider when choosing a workplace pension. Some schemes might not be suitable for your employees or industry. So it’s essential to compare workplace pension providers first.
Here are some things to think about:
As of 2012, by law all UK employers must set up an auto enrolment scheme for staff. This legislation aims to get more people saving money for their retirement.
You’ll need an automatic enrolment scheme to ensure eligible employees are enrolled. Some may only accept employers with a certain number of employees or specific earnings. It’s important to check if the pension scheme is suitable for all team members.
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Schemes must be approved by the Financial Conduct Authority (FCA) or independently reviewed. This shows compliance of automatic enrolment duties.
As a workplace pension adjusts an employee’s monthly wage, this is a contractual change. Your payroll system must be compatible with the scheme to ensure correct contributions.
But not all payroll systems are compatible. You may need to outsource this task if this problem arises. If your payroll software is a match, you’ll save time and money when setting the scheme up. You will also need to check if the software can carry out automatic enrolment tasks.
It’s best to choose a workplace pension scheme with a tax relief method that suits your employee’s needs. These methods are:
This method takes your employee’s contributions from their salary after tax. The pension provider will automatically top up each staff member’s savings by 20%. This is claimed back by the government as tax relief.
For example, an employee paying a 5% contribution of £100 a month will see an £80 deduction from their net pay. The additional £20 is the government’s contribution.
The Net Pay arrangement doesn’t provide tax relief per se. But as the employee’s contributions occur before taxation, they get tax relief immediately. This is because they only pay tax on their remaining income after deductions.
So, an employee earning £2,000 and paying a 5% contribution of £100, will only pay tax on the remaining £1,900. The employee’s monthly tax bill will be lower as a result.
Those earning below the personal allowance of £12,570 will not get any tax relief through Net Pay.
In fact, they will end up paying 20% more to their pension. If any of your staff earn less than £12,570 a year, the Net Pay method may not be the best option.
Nick Nelms
Senior Employee Benefits Consultant at Drewberry
Some workplace pension schemes operate through Salary Sacrifice. This lets staff contribute to their pension without lowering their take home pay. Pension contributions are deducted before their wage is taxed, making it tax efficient.
Employees pay less tax each month through this method. As their taxable income is lower, employers then pay less National Insurance (NI) as a result.
Salary Sacrifice can either be:
Salary Sacrifice hasn’t always been available, but it’s becoming a popular option in workplaces. It’s important to remember that you can only use one tax relief method for your workplace pension.
Managing a workplace pension scheme is admin-heavy. Employers need to keep track of their scheme and ensure enrolment happens on time. As an employer, you might not have the time to manage the scheme yourself.
Some workplace pension providers can take the workload off your hands. An account manager may be assigned to ensure completion of admin duties. If your company would benefit from this, check which workplace pension providers offer this service.
The alternative is to work with a corporate financial adviser to manage the scheme on your behalf. At Drewberry™ , we can assist with the management of your pension scheme from governance to the every day administration if you find you don’t have the time or resources to do so yourself.
Please don’t hesitate to pop us a call on 02074425880 or email help@drewberry.co.uk if you would like to know more.
Your employees may also require extra support with their workplace pensions. They may not understand how it works and need financial education with regards to the workplace pension arrangement and their retirement planning.
Most workplace pension providers have plenty of accessible resources. Make sure to check what information each provider offers and how comprehensive it is.
Many providers also have online portals for staff to access their pension documents. They can check their savings, switch funds, and see projected values at any time.
While providers supply a wealth of information, you may want to provide your staff with a more personalised experience. Presentations or 1-2-1’s with a corporate adviser may be of use to your employees in this situation. In fact, our 2022 Workplace Pension survey found that 1 in 3 employees would like company paid meetings with a financial adviser.
All workplace pension providers have costs and charges. These differ from provider to provider, so it’s important you’re aware of how much the scheme will cost. Employers can then ensure they don’t go above the company’s employee benefits budget.
Providers take into account your employees, their salaries, and your business turnover. Employers may be liable for:
By law, employers must contribute at least 3% of an employee’s qualifying earnings into the scheme. These monthly payments should be factored into your budget.
Don’t forget the potential costs for your employees too. Most providers have an Annual Management Charge (AMC) for employees to pay. This is something to consider when evaluating your workforce.
As mentioned, corporate pension providers have fees and charges for setting up and running a scheme. The best workplace pension for your company is the scheme which suits your budget best.
We’ve outlined the key costs that you as an employer need to be aware of when looking at workplace pensions.
Providers may have no set up charges for employers, which is useful if you have a small budget. While other providers may have a one-off fee. This will depend on the scheme provider you pick.
If your payroll software isn’t compatible with the scheme, the costs will vary. Outsourcing the payroll tasks to an agency or an accountant will cost. Some will provide auto-enrolment tasks within their price or charge extra. For small businesses, the set up of the payroll software could cost up to £300.
There may also be a monthly charge for employers, depending on the provider. This will range in price, so you should check what each one charges before choosing your scheme.
If you need more support with your pension, the cost depends on how much support is necessary. At Drewberry™, for example, we have a fixed fee for providing ongoing support. Other firms may charge hourly, which can be useful if you only need minimal help.
IMPORTANT NOTICE ⚠️
All pension providers require employers to pay contributions to their employees’ pension pots. This is a non-negotiable cost for companies. Contributions must also be paid by 22nd of each month. Failure to do so could result in warnings or fines.
Employees eligible for auto-enrolment are liable for charges too.
All providers tend to have an Annual Management Charge (AMC) to cover managing and investing the employee’s savings. This is either a set fee determined by the provider or a percentage of the value of the employee’s pension. The government has capped these charges at 0.75% for default funds. So, for every £100 invested, an employee would pay no more than 75p.
Pension providers will often take a percentage of what an employee saves into their pension every time they make a contribution. This charge can vary between providers, so it’s vital to check before you choose a scheme for your employees. Nest takes 1.8% for each contribution, for example.
Pension providers are assessed by credit rating agencies Fitch Rating, Standard & Poor’s (S & P), and Moody’s. Ratings depend on which investments will not default and produce a solid return.
Fitch and S & P use a letter system to rank providers. Moody’s rate using letters and numbers. These ratings are as follows:
Financial Strength | Investment Grades |
|---|---|
Fitch & S & P |
Note: These can have a plus or minus alongside the letter grade. |
Moody’s |
| Non-Investment Grades |
Fitch & S & P |
|
When you compare workplace pension providers, look for ratings with an A grade. This signifies the provider is likely to be able to pay out. While these ratings are a good indicator of financial strength, it’s not perfect.
One provider could have different ratings from agency to agency. We provide the most recent financial strength rating in the workplace pension comparison table in the section below.
A good workplace pension scheme should typically include the following:
In terms of global accessibility to all employers, Aviva is one of the best providers in the UK. It provides services to over 33 million customers worldwide.
Due to the nature of investing, it isn’t possible to confirm how much an employee’s pension savings will be worth when it’s time to retire. The value of a pension pot will depend on factors including:
Each employee can choose their own investments which will determine the return on their contributions.
Workplace pensions with a variety of funds give staff flexibility over their investments. A diverse investment portfolio can help them save for retirement in a way that suits them.
The default fund in a workplace pension will tend to be index-linked and have low to medium investment risk. When an employee is first enrolled into the company pension they are enrolled into the default fund regardless or how old they are or their appetite for risk.
It is a fund that is designed to be a good fit for the 80% of people who don’t want to manage their pension investments.
Most default funds are lifestyle strategies, such as Royal London’s Balanced Lifestyle Strategy. This is designed to follow the employee’s journey to retirement, ensuring investment risk is reduced as retirement nears. It aims to protect the value of the pension.
Most providers will offer lifestyle or ‘target date’ options. But there are many different areas of investment. Some are more generic to suit all needs, while others are more specialist.
Some staff members may want to invest ethically, so an ethical fund is necessary. Most providers have at least one ethical fund available. Another type to consider is Sharia funds for any employees who are muslim and practise Islam. Sharia-compliant options invest according to Islamic law.
The best workplace pension providers have a range of funds for staff to pick from. Offering a scheme with a variety of investment options including ethical funds can be beneficial for your own ESG policy or B Corp status.
To save employers time and resources, some prefer to use a workplace pension scheme that isn’t complex to set up.
Setting up a pension can be time-consuming and requires plenty of admin. Pension providers are aware of this, and as a result, can help employers through the process. If you’d like to limit the stress of setting up a pension, look for providers that assist with set up. This can reduce your workload and let you continue running your business.
When comparing providers, the following questions can help to evaluate the scheme’s accessibility:
Many pension providers provide employers and their employees access to online portals. The aim is to make it simple for everyone to access information about the scheme.
To make your scheme streamlined for your staff, a pension with online portal services is a good idea. Many of the largest pension providers offer these services. This can ease the pressure off you and support your employees.
One of the most important parts of setting up your workplace pension is communicating the scheme to your employees. Failure to do so effectively could mean that staff don’t find any value in the benefit. Our findings from the 2022 Workplace Pension survey revealed that poor communication of their pension scheme is a significant problem.
49% of UK employees don’t know how much they contribute each month to their pension and 41% are unaware of how much their employer contributes.
There are many ways to communicate this information. Some of which may suit your company more than others. It depends on your employee demographic and resources.
Common communication methods include:
The best workplace pensions will offer support via guides, videos, and even webinars.
Education is a key part of the communications process. As 48% of respondents told us that they don’t understand the tax relief benefits of a pension, it’s clear that more awareness is necessary.
As an employer, you could be offering a highly valuable benefit to staff through their pension, yet they don’t know much about it. By promoting it and showing your employees the true value of a pension, they will engage with the scheme and feel more valued.
Financial education in the workplace can help staff better understand their benefits and improve their financial wellbeing. Your company’s Total Reward Statements can be useful too. This provides a holistic view of your rewards and benefits, detailing what employees are entitled to.
Finding the best workplace pension for your company can be challenging. There are many pension providers to choose from and options to consider. Below you’ll find the key information for each pension provider to help you compare.
| Provider Overview |
|---|---|
Aviva was founded in 1797, but the brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC. It offers a multi-employer defined contribution master trust pension scheme for all types of companies to use. | Pension Plan Information |
Type Of Scheme | Group Personal Pension or Group Self-Invested Personal Pension |
Employer Type | All |
Business Size | Might not be suitable for small business due to the large scale of Aviva |
Tax Relief Method |
|
Salary Sacrifice Options? | Yes – SMART & Simple | Investment Fund Options |
Default Fund | |
Number Of Funds Available | 280+ for Group Personal Pensions or 80 for Group Self-Invested Personal Pension |
Ethical Funds | 23 for Group Personal Pensions or 13 for Group Self-Invested Personal Pensions |
Sharia Funds | 1 – Aviva Pension HSBC Islamic Global Equity | Costs & Charges |
Annual Management Charge (AMC) | Capped at 0.75% |
Additional AMC | 0.15-0.16% for Stewardship fund |
Set Up Cost For Employers | £0 |
Monthly Fee For Employers | £30-£50 depending on scheme size & proposition | Financial Strength & Awards |
Agency & Rating | S & P – AA- (Stable) |
Awards |
| 
| Provider Overview |
Aegon was founded as Scottish Equitable in 1831 in Edinburgh and is still headquartered in the city. Dutch insurer Aegon N.V. bought a 40% stake in Scottish Equitable in 1994 and became a 100% stakeholder in 1998. It offers a defined contribution master trust scheme. | Pension Plan Information |
Type Of Scheme | Group Self-Invested Personal Pension |
Employer Type | All / any industry |
Business Size | Suitable for all businesses |
Tax Relief Method | Relief At Source |
Salary Sacrifice Options? | Yes – SMART & Simple | Investment Fund Options |
Default Fund | |
Number Of Funds Available | 4500+ for Group Self-Invested Personal Pensions |
Ethical Funds | 200+ options, including Ethical Cautious, Ethical Managed, and AM Ethical Corporate Bond |
Sharia Funds | 1 – Aegon HSBC Life Islamic Global Equity | Costs & Charges |
Annual Management Charge (AMC) | Dependent on scheme profile |
Additional AMC | Platform charges apply |
Set Up Cost For Employers | £0 |
Monthly Fee For Employers | £0 | Financial Strength & Awards |
Agency & Rating | S & P A+ (March 2022) |
Awards |
| 
| Provider Overview |
Now:Pensions is the UK’s third largest provider of automatic-enrolment workplace pension schemes. Set up by APT of Denmark, it serves over 30,000 businesses and 1.7 million pension members. | Pension Plan Information |
Type Of Scheme | Master Trust |
Employer Type | All |
Business Size | Best suited to small businesses |
Tax Relief Method | Net Pay |
Salary Sacrifice Options? | No | Investment Fund Options |
Default Fund | Diversified Growth Fund |
Number Of Funds Available | Very limited |
Ethical Funds | Has zero ethical options but incorporate Responsible Investing objectives into default options |
Sharia Funds | No options available | Costs & Charges |
Annual Management Charge (AMC) | 0.3% of the value of an employee’s savings |
Additional AMC | N/A |
Set Up Cost For Employers | £0 |
Monthly Fee For Employers | £36 plus VAT (if working directly with Now:Pensions) | Financial Strength & Awards |
Agency & Rating | S & P AA- (Feb 2022) |
Awards |
| 
| Provider Overview |
Nest (National Employment Savings Trust) is a master trust workplace pension scheme. It was set up by the government to support employers with automatic enrolment. | Pension Plan Information |
Type Of Scheme | Master Trust |
Employer Type | All |
Business Size | Popular option for SMEs |
Tax Relief Method | Net Pay |
Salary Sacrifice Options? | Yes – Simple | Investment Fund Options |
Default Fund | Retirement Dated Funds – specific to each member |
Number Of Funds Available | 6 |
Ethical Funds | 1 – Nest Ethical Fund |
Sharia Funds | 1 – Nest Sharia Fund | Costs & Charges |
Annual Management Charge (AMC) | 0.3% on value of savings |
Additional AMC | N/A |
Default Fund Charges | 1.8% on each new contributions |
Set Up Cost For Employers | £0 |
Monthly Fee For Employers | £0 | Financial Strength & Awards |
Agency & Rating | N/A as government-run scheme |
Awards |
| 
| Provider Overview |
Royal London began as a friendly society in 1861, later changing to a mutual society in 1908. Today, Royal London is the UK’s largest mutual life, pensions and investment company. | Pension Plan Information |
Type Of Scheme | Group Personal Pension |
Employer Type | All |
Business Size | All |
Tax Relief Method | Relief At Source |
Salary Sacrifice Options? | Yes – SMART & Simple | Investment Fund Options |
Default Fund | |
Number Of Funds Available | 180+ |
Ethical Funds | 1 true ethical & 6 ESG, including RLP Sustainable Leaders, Sustainable World Trust, and Ethical Bond |
Sharia Funds | 1 – RLP/HSBC Islamic Global Equity | Costs & Charges |
Annual Management Charge (AMC) | Capped at 0.75% |
Additional AMC | None |
Set Up Costs For Employers | £0 |
Monthly Fee For Employers | Can apply typically for schemes with low average contributions | Financial Strength & Awards |
Rating & Agency | Moodys A2 (July 2022) |
Awards |
| 
| Provider Overview |
| Scottish Widows dates all the way back to 1812 with an original remit of setting up a general fund to protect the assets of widows and the female relatives of fund-holders. It has nearly 6 million customers, providing a range of pension and protection products. | Pension Plan Information |
Type Of Scheme | Group Personal Pension |
Employer Type | All |
Business Size | Best for medium-to-large-sized businesses |
Tax Relief Method | Relief At Source |
Salary Sacrifice Options? | Yes – SMART & Simple | Investment Fund Options |
Default Fund | |
Number Of Funds Available | 150+ |
Ethical Funds | 6, including Scottish Widows Ethical CS7 and Scottish Widows Environmental CS7 |
Sharia Funds | 1 – Scottish Widows Sharia CS7 | Costs & Charges |
Annual Management Charge (AMC) | 1% |
Additional AMC | N/A |
Set Up Cost For Employers | £0 |
Monthly Fee For Employers | £0 | Financial Strength & Awards |
Agency & Rating | IFS A+ (Nov 2022) |
Awards |
| 
| Provider Overview |
The People’s Pension is one of the UK’s largest defined contribution pension scheme providers. It’s available to any size company in any industry, but smaller businesses may find it more suitable. | Pension Plan Information |
Type Of Scheme | Master Trust |
Employer Type | All |
Business Size | Smaller business may find it more suitable |
Tax Relief Method |
|
Salary Sacrifice Options? | Yes – SMART & Simple | Investment Fund Options |
Default Fund | |
Number Of Funds Available |
|
Ethical Funds | 1 true ethical, all other funds have elements of ESG |
Sharia Funds | 1 | Costs & Charges |
Annual Management Charge (AMC) | 0.5% |
Additional AMC | N/A |
Default Fund Charges | £2.50 annually |
Set Up Fee For Employers |
|
Monthly Fee For Employers | £0 | Financial Strength & Awards |
Agency & Rating | B&CE – AKG B (strong) at February 2022 |
Awards |
|
If you’d like more help with choosing the best workplace pension for you, don’t hesitate to get in touch with us. At Drewberry, our team has got you covered. Our pension experts can help you find the best workplace pension scheme for your company. We can take care of setting up your pension, enabling you to run your business without any extra stress.
To ensure your employees get the most out from their pension, you can call us on 02074425880 or email at help@drewberry.co.uk.
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