Workplace pensions

Contribution design

The automatic enrolment duties set out a minimum level of contributions that will need to be paid and the earnings on which these should be based. Often, this will be below the level required to provide for a reasonable level of income in retirement.

When considering contribution design, you will need to think about the following key points:

• What is your aim with the plan? Is it simply to comply with the automatic enrolment duties or are you using it as part of a wider employee benefits package?
• Are you aiming to use the plan as a recruitment and retention tool? If so, you’ll need to consider what your competitors are offering, what contribution design would provide a reasonable level of income for your employees in retirement and what is affordable for your business and for your employees.

You can also think about how pension contributions are physically paid. For example, you could use a pension salary sacrifice (also known as salary exchange) arrangement, where both you and your employees can save National Insurance on the contributions they pay into their pension.

We can help you to design the most cost effective contribution design that is both competitive and affordable.

Provider selection

Once you’ve chosen a contribution design, you’ll need to choose a provider to operate your workplace pension.

You will want to be certain that the knowledge, skills and processes of the people running your plan are first class.

Providers need to be able to handle all the tasks associated with running a workplace pension. They need to be able to invest pension contributions in members’ accounts quickly and in line with their investment choices, administer those accounts on an ongoing basis, make changes where these are required and provide members with accurate information in a prescribed format on a regular basis. Providers differ in how they meet these requirements, for example in the way they will accept contributions, the support they offer members and the quality of their communications.

A vital consideration when choosing a provider for your workplace pension is what the provider will charge for the services provided. The level of this charge can have a huge overall impact on how much money someone has in their pension pot when they come to retirement.

We can work with you to make sure the chosen provider meets the criteria you set.

You can visit the following page to see more about what you need to consider when setting up a pension scheme for the automatic enrolment duties: http://www.thepensionsregulator.gov.uk/docs/employer-select-pension-automatic-enrolment.pdf.

Investment advice

How pension contributions are invested can have a large impact on the amount of money available to your employees at retirement. When it comes to pensions, it is vital to remember that they are a long term investment – it is usually only possible to take the benefits from a pension plan after the age of 55 (although this is set to increase to 57 on 6 April 2028). Therefore, it is important that the investment options offered to members in your workplace pension takes into account both the risks members face, but also the timescales over which most people will be investing.

The default investment strategy is the investment fund, or funds, into which members’ contributions are automatically put if they do not make their own investment decision. Experience suggests that the vast majority of members who join pension arrangements stay in the default investment strategy throughout their membership, and so it is vital to get the design of this strategy right, striking a balance between investment risks and  the aim of ensuring members have as much money as possible at retirement.

As well as considering an appropriate default investment strategy, you will also need to consider the wider investment fund range from which members can choose. Do you want them to have the full range on offer by the chosen pension provider (which can be in excess of 100 different funds), or do you want to provide a narrower range of options to help them decide?

When it comes to designing a default investment strategy, and offering investment options, we can work with you, to ensure that what you have in place is appropriate for the needs of your employees.

Governance

Once you’ve designed your contribution structure, selected a provider, put in place a default investment strategy and other investment options, you’ll want to make sure that everything is operating as it should be on an ongoing basis.

As an employer, you’ll want to ensure your pension arrangement is still working in a number of key areas:

• You and your employees are continuing to get value for money
• The plan remains fit for purpose
• Charges remain at a competitive level
• Investment performance is in line with stated objectives
• Administration is accurate, efficient and effective
• Your pension provider’s business remains competitive and financially secure

We have extensive experience of working with employers, governance committees and groups of trustees to monitor their pension arrangements on an ongoing basis to ensure they are working as they should. We can work with you to create a monitoring framework that is suitable for your business.

Tax treatment varies according to individual circumstances and is subject to change.

The value of investments can fall as well as rise. Investors may get back less than they invested.