Consider this – are you unwittingly disposing of chunks of your income that you worked hard for? Sounds absurd, doesn’t it? But your organisation might be doing just that because the set-up of your workplace pension scheme has kept you blissfully unaware.
Pension contributions by employers are great in principle, fostering stability and long-term economic wellbeing for employees. They contribute to a more vibrant and committed team, which is profitable for the business.
However, both traditional pension providers and the state have contributed to a system that could operate far more efficiently than it does at present. Here are some key points to consider.
The tax maze
Various governments, regardless of political inclination, seem to enjoy meddling with taxes, which prevents them from reaching an ideal scenario where workplace pensions are inherently tax-efficient.
Instead, there are hurdles to overcome and tax breaks to find to dodge a completely needless National Insurance tax on staff pension contributions.
Consider salary sacrifice, for instance. At first, it may seem confusing (“How will my net income increase if my gross income decreases?”), but it’s an easy-to-use loophole, benefiting both employees and the organisation.
You may naturally assume that workplace pension providers will guide you through this maze. However, traditional providers typically show an uninspiring commitment and lack innovation, acting more like a lethargic tortoise.
Once they have secured your business, perhaps they don’t believe they need to strive too hard to retain you. After all, changing your organisation’s pension plan seems like a significant task that most high-ranking executives would prefer to dodge, right? They’re betting on you thinking this, but don’t be tricked – the switch is simple and not the daunting task you may presume it to be.
Value for your investment
Your pension provider should offer more than the bare minimum, contributing to employee engagement, advocating financial literacy, and providing tools for smooth retirement planning. After all, your workplace pension is your most costly perk.
A top-class pension is a potent tool, directly influencing employee wellness, productivity, and overall job satisfaction. From a business viewpoint, evaluate the ROI it offers if it assists in retaining your top talent. Not only will it lessen the administrative workload, but it will also save your company resources.
According to Oxford Economics and Unum, the average expense of losing an employee is about £30,000. This cost encompasses the lost productivity from their exit, the expense of recruiting a replacement, and training them. Your current employees will appreciate the provision of a tool that assists them in managing their finances. A pension that is readily accessible on their mobile, rather than paperwork stored away in home files, is always within reach.
Technology (like Penfold’s pension app) allows employees not only to calculate how much they may need for retirement but also to establish a savings target and track progress towards it. We supplement this with regular communication and educational content, which helps staff feel confident about managing their finances.
In the end, this results in a win-win for everyone. The less employees worry about money (a common source of stress), the more productive they’ll be.
If you’ve not heard from your pension provider in some time, or if they’re not delivering the level of service that top-tier professionals anticipate, consider whether they’re serving your business effectively.
The price of poor fund performance
Could you tell us the percentage increase of your pension over the last few years? If your pension provider isn’t regularly updating you on the growth of the pension funds they manage, ask yourself why. To illustrate, consider an employee named John.
John has worked diligently for three decades, only to discover his retirement savings won’t support the lifestyle he expected because his pension was mismanaged.
The absence of proactive updates from his pension provider led to a lack of routine reviews, which resulted in less money for poor John. It’s a story as old as time: a minor oversight leading to severe consequences.
Tiny variations in the performance of different pension funds may not seem significant, but if you’re stuck with a underperforming pension fund throughout your career, each 1% decrease in average annual growth can cost an average employee (with a median career salary of around £32k) over £100k in final pension pot size! That amount can greatly impact retirement quality of life. And all because of a pension provider who minimized communication and relied on you not comparing their fund performance to others. Penfold routinely do this in our quarterly reports, in case you were curious.
The path ahead
Equipped with knowledge about inefficiencies in workplace pensions, we hope you feel more prepared to make decisions that can improve the ROI of your most expensive perk.
Workplace pension providers ought to respect hard-earned pension contributions, engage employees with updates, and assist you in navigating the complex tax system.
If you believe your current provider isn’t maximising your financial situation and that of your employees, perhaps it’s time to reconsider your options? Switching is easy, providers like Penfold will assist in managing the entire process for you. Book a demo of Penfold’s workplace pension today.