How would you feel if you discovered your company was unintentionally wasting a significant portion of your salary? We’re guessing you’d be pretty angry and upset about it.
But your workplace pension setup could be causing this wastage right under your nose, without you even being aware.
Workplace pension contributions are fantastic as a concept, offering long-term financial stability and nurturing a productive and motivated workforce. The better schemes act like an effective advertising campaign, being beneficial for business.
However, traditional pension providers and government policies have contributed to a setup that’s far from perfect. Here are the things to watch out for.
The Tax Maze
Various government factions seem to constantly be fiddling with tax policies, preventing them from achieving an ideal: making workplace pensions tax-efficient by default.
Instead, you need to navigate through a myriad of regulations and find hidden legal loopholes to sidestep an avoidable National Insurance tax on employee pension contributions.
Consider Salary Sacrifice, which can initially seem perplexing (“Won’t earning less on paper reduce my take-home salary?”). Yet, this loophole is easy to implement and makes both employees and companies better off.
You might expect pension providers to help you traverse this complex maze. However, many traditional providers don’t bother.
Once they secure your business, they might not feel too compelled to work hard to retain you. Changing the company pension that serves hundreds or thousands of employees seems like an arduous task most executives would rather avoid.
They rely on you thinking this, but don’t be fooled – switching is uncomplicated and far from the formidable task you might perceive it to be.
Maximising Your Investment
Your pension provider should offer more than the bare minimum, contributing to employee engagement, providing financial education, and equipping employees with tools for effective retirement planning. Remember, your workplace pension is your priciest benefit.
A top-notch pension is a powerful tool that positively affects employee wellbeing, productivity, and job satisfaction. Consider the return on investment it offers by retaining your top-performing employees. It not only reduces administrative overhead but saves your company money.
Oxford Economics and Unum estimate the average cost of losing an employee to be about £30,000, factoring in lost productivity, recruitment costs, and onboarding expenses.
Moreover, your existing employees will appreciate a tool that aids them in managing their finances. Rather than paperwork stowed away at home, a mobile-accessible pension gives them the power to manage their finances more easily, with information always at their fingertips.
Digital solutions (like the Penfold app) help employees calculate their retirement needs, set saving targets, and track their progress. We support this with frequent updates and educational content that empowers employees to confidently manage their finances.
This approach results in a win-win for all. The less financial stress employees face (a common cause of anxiety), the higher their productivity levels.
If your pension provider has been out of touch, or if their service doesn’t meet the expectations of top talent, evaluate if they’re truly serving your business needs.
The High Cost of Poor Fund Performance
Do you know the growth percentage of your pension over the last few years? If your pension provider isn’t regularly updating you on their fund management performance, you should be concerned. To illustrate this, let’s look at an imaginary employee named John.
John, having worked hard for 30 years, finds his retirement funds inadequate for the lifestyle he envisaged, due to his poorly managed pension.
The lack of regular updates and reviews by his pension provider resulted in a disappointing financial outcome for John. Such a minor negligence can have dire consequences.
Small variations in the performance of different pension funds may seem insignificant, but being stuck with a poorly performing pension fund over a career can be costly. Each 1% below the average annual growth rate can cost a typical employee (with a median career salary of around £32k) over £100k in final pension pot value! This amount can greatly impact the quality of retirement life.
And all because a pension provider doesn’t see communication as a priority and keeps their fingers crossed that you won’t compare their fund performance with others. At Penfold, we include this comparison in our quarterly reports.
Conclusion
Armed with this knowledge of workplace pension inefficiencies, we hope you’re better equipped to make decisions that enhance return on investment for your most costly benefit.
Workplace pension providers ought to treat hard-earned pensions with due respect, keeping you informed with updates, and aiding you in navigating the intricate tax system.
If your current provider isn’t optimising your financial situation and that of your employees, perhaps it’s time to consider your options? Switching is straightforward, and the superior pension companies (like Penfold’s!) will facilitate the entire process for you.Book a Penfold pension demo today.