The majority of schemes in the UK are Group Personal Pensions. These are individual pensions under a group banner. A pension is a savings scheme where individuals can build up funds for their retirement.
Way too often, Group Pension Schemes are treated as a payroll exercise. Companies should ensure their employees fully value the investment they are making. CB Financial ensure the benefits of your Group Pension is communicated clearly to employees, so they fully value the investment your company is making.
What are the advantages of contributing to a Group Pension scheme?
- You cannot access the funds until 55 at the earliest (going up to 57 from 2028). This may not seem like a benefit. But ‘If you could, you probably would.’ So it’s good that it locks your money away for a period of time.
- The company has to contribute. Employees won’t get the money any other way.
- Tax benefits on contributions – Depending on the scheme set up, there are two ways employees can contribute:
- Relief at source method – Employee make their contributions after they have been taxed via their PAYE. And then basic rate tax relief is paid into your pension at the pension providers end. Higher rate tax payers can reclaim the additional rate via their self-assessment.
- Salary Sacrifice – Employees sacrifice part of their salary to be paid into their pensions before tax. For technical purposes, these become a company contribution because the company makes these contributions direct. Companies do not have to pay National Insurance (NI) on the amount their employees sacrifice. So some elect to pay part, or all of this saving into the employees pension to give the contributions an uplift.
- Your funds will grow in a tax free environment.
- When you retire, you will be able to get 25% of the fund as a tax free lump sum. The rest of the fund is typically used to provide an income for the rest of your days in retirement.
- There are distinct death benefits attached to pension schemes and these can be used in conjunction with your estate planning.
Key Group Pension Scheme product considerations
Choosing a Group Pension Scheme for your employees is perhaps one of the most important decisions a company can make for its employees. Here are some key considerations for companies when making a decision:
- What are the range of funds available for employees?
- Is the pension portable for employees (i.e. would they be able to transfer their pensions should they wish?)
- Performance is subjective because of the range of funds available. However, it is good practise to review the performance of the default fund?
- What are the retirement provisions available for employee approaching retirement?
- Do you want senior employees to have access to a larger range of funds?
- What is the financial strength of the provider? These will typically be rate by either standards and poors or moodys.
- What are the charges for the scheme both to the employee and the company?
How good is the online functionality for employees?
All pension providers now provide an online facility to view your pension, however, they vary in terms of the tools available. A good guide is to find a pension scheme where employees can:
- View their pension online,
- Review their Attitude to Risk,
- Change their funds to meet their attitude to risk
(ideally with unlimited switches within a year)
Lastly, one of the most important considerations is the online facilities provided by the providers to apply contributions. These quality of these, vary dramatically. You should review their ease of use, their ability to cope with large data being applied on a monthly basis, and the back office service provided should employees or the company need help.
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- Quote the market
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- Report and Recommendations
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- Full Implementation
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