How to help your workforce save more towards retirement
With life expectancy continuing to increase and the State Pension age being pushed back further, the need for personal retirement savings is growing.
Auto-enrolment was introduced to encourage workers to begin saving for retirement at an earlier age however, this alone is still considered by some to not be enough.
There are however some small changes you could consider to help your workforce:
Under auto-enrolment rules, the minimum contributions required are 8% of the employees’ salary, consisting of a 5% employee contribution and 3% from the employer.
A powerful way is to match employee contribution levels with your own employer contribution levels. You can match up to any level the employee chooses, or place an upper cap on this, e.g. matching contributions up to a maximum of 10%.
Default fund selection
Each member of the workplace pension has the option to choose their own investment funds. However, many either are not aware of this, or do not have the knowledge or interest to select alternative investments and so remain in the scheme default fund.
This emphasises the importance of choosing an appropriate default fund for the pension scheme that accommodates the demographic of your workforce.
The type of investment typically selected for this is a ‘lifestyling fund’. This is an investment strategy, where the provider or fund manager automatically switches the employee’s pension savings into another fund, or funds which are considered lower risk as they get closer to their chosen retirement age.
By choosing an appropriate investment strategy such as this, it reduces the risk of your workforce not actively managing their investments themselves, or potentially selecting an unsuitable fund for their personal situation.
Choosing the right provider
Most employers wish to ensure the benefits they provide to their workforce are cost effective for the business but should be aware that cheaper providers may not provide added value to the benefit given to the employees themselves.
Some of the larger, and typically marginally more expensive, yet household name providers may provide a greater fund choice in addition to other additional benefits. These can include a much-improved online portal with a breakdown of funds, retirement calculators and easy access illustrations to engage the employees in their pension benefit and retirement saving.
Different method of tax relief
You may offer the option of ‘salary sacrifice’ to your workforce as part of the pension scheme. This is where the employees sacrifice a part of their salary in favour of an increased employer contribution so to benefit from tax relief at their highest marginal rate immediately.
As this effectively means the employee is earning a lower salary, both you and the employee will be paying a lower level of National Insurance contributions, so their take home pay can sometimes increase whilst maintaining the same level of pension contributions.
In addition, you have the option to pay all, or a portion of your employer NIC savings into the employee’s pension pot as further contribution however, this is not mandatory.
Using salary sacrifice does impact other factors for the employee, so they should ensure this is the correct for their own personal circumstances.
Some employees may not always understand the full benefit of their pension to them, or the technical jargon paperwork that may come with it. This can often result in losing interest or ‘opting out’ of the scheme, jeopardising their retirement plans.
To prevent this, employers can employ the services of professional experts in providing regular pension seminars, or one-to-one meetings with financial advisers to provide better understanding and assist with decision making.
This additional service is often seen as a valuable contributor to employee satisfaction.
But… is this right for you?
Whilst a workplace pension may be suitable for many, this form of retirement saving may not be the best option for all.
Company directors and high earners may have more complex affairs and benefit from a more individual retirement plan, possibly involving a more extensive fund selection, a managed investment strategy or the possibility of holding different assets, such as commercial property within.
To discuss assisting your workforce towards retirement, or your own retirement plans please contact our Financial Planning team on +44 (0)1227 768231 or provide your details on our online enquiry form.
The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.
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