It's easy to understand why pensions can be so mysterious. We're essentially saving money for the benefit of some distant, future version of ourselves.
In many, ways that's why auto enrolment (AE) exists. British people aren't saving and the government keen to change by making it easier to save.
But despite its noble aims, AE still leaves many Britons feeling rather ambivalent, though. So, to dispel some of the mystery, here are some words of wisdom from Darren Philp, director of policy and market engagement at The People's Pension.
How do small businesses feel about workplace pensions?
We recently did some research which reveals that nearly half of small businesses are confused about setting up a workplace pension for their staff. Nearly half also said they wanted help and support to get this sorted, but almost as many said they weren’t sure where that help would come from.
Do all small businesses have to set up a workplace pension for their employees?
All employers, however small, now need to think about workplace pensions for their staff. That even includes people who employ a nanny if they do it directly and earn above the eligibility threshold.
Some small employers might not need to sign anyone up, but most will, so they’ll need to get to grips with it as soon as possible. They’ll need to enrol any ‘eligible’ employees.
Those employees need to be working in the UK, aged between 22 and state pension age and earn more than £10,000 to be auto-enrolled. They can opt out, but not until after they have joined. Current contribution rates are 1% employer and 1% employee, but this will rise over time to 8% with the minimum of 3% from the employer.
Automatic enrolment is a government initiative designed to help people save for later life. People are living longer, so it’s more important than ever for people to start saving early. So putting your eligible employees into a workplace pension is the law – but don’t worry, there’s help available.
What is it about workplace pensions that local business owners find most complicated?
Workplace pensions mean extra work for employers who probably feel they have enough to do running their businesses. And while auto-enrolment is automatic for staff, it certainly isn’t automatic for employers.
There’s too much jargon and there are a lot of pension providers out there – sometimes it can be hard to see the wood for the trees.
A third of the small businesses we spoke to told us that they thought there was only one government-backed scheme available for them to use. This definitely isn’t the case – and some pension schemes work better for some employers than others, so it’s important to shop around.
Where can small businesses get some help finding a workplace pension?
A quick chat with a business adviser (perhaps an accountant or the person who does their payroll) might be able to help them along the way. More than a third of small businesses we spoke to said they planned to hand the task of setting up their workplace pension over as far as possible.
They could also speak to a pension provider who supports businesses of all sizes with their workplace pensions – details for some of these which have high standards of governance are available on The Pensions Regulator’s website.
Are small businesses more concerned about their staff or potential fines?
Our research reveals that it’s both. More than two-thirds of the small businesses we spoke to said that they wanted to help their staff to have a good income in retirement, which is great to hear.
But we have to be realistic. Fines are going to play a massive part too. They range from £50 per day (yes, per day) for a business that employs 1-4 employees, to £500 a day for a business that employs 5-49 employees. A company employing 500 people or more could be fined £10,000 a day!
What should small businesses be looking for in a workplace pension?
For many, the answer is a high level of support. In previous research this came across loud and clear. Workplace pensions are not a one-off job, they’re a duty that stays in place week in week out from the day you sign up.
That’s why the one they choose matters so much. Do they want a pension provider who relies on online tools, or one which is more likely to have a friendly voice at the end of the phone? The two are not mutually exclusive – but pension providers can be very different.
Small businesses should also look at how clearly pension providers communicate, and how open they are about how they charge and when. Some schemes charge a one-off fee, some charge monthly, and some do both – the latter two of which can really add up over time.
Some workplace pension schemes are free for employers to use, but they can make up for it by charging employees high premiums on their hard-earned pension savings. That might not sit too well with small businesses who really want to see their employees achieve a good pension! They’ll probably also want to choose a scheme which ensures their employees get a valuable top-up from the government.
Finally, they should look for a pension provider which makes things as simple as possible and which keeps its promises. Some pension schemes even tell The Pensions Regulator that you’ve complied with the law at the end of the process, which can be a big help.
Where can we find out more information?
Alternatively, they can talk to the people who support them with their business day to day – like accountants and whoever does their payroll.
Need a solution to auto enrolment? The People’s Pension can help. Read our FREE guide to setting up a workplace pension scheme.
Francois is the deputy editor of BusinessZone and UK Business Forums.