7 min read
Pensions for Employers

Seven ways to improve your pension offer

Catherine Miller

Changing pension provider can be costly and time consuming. The good news? You don’t need to change pension provider to offer a market leading pension package. Here we’ll detail the seven things you can do to improve your package.

Your pension package matters

In today’s jobs market, prospective employees are on the lookout for generous benefits. The workplace pension scheme can be a key part of your recruitment package: 69% of employees think the pension scheme is important when looking for a new job (The People’s Pension). And 42% of businesses also see a positive impact on retention (CBI). Offering the default minimum pension arrangement (8% of qualifying earnings, with just 3% coming from you) may not be competitive enough if you’re hoping to attract and keep top talent. 

What’s more, your pension package can also form a key part of your financial wellbeing strategy. We know financial worries are a big deal, especially since Covid. Even before the pandemic, 77% of people felt money stress was affecting their work (Close Brothers). And the impact on employers can be huge: lost productivity due to poor financial wellbeing could be costing UK businesses up to £51 billion each year (Salary Finance)!

Upgrading your pension package can lower money worries by helping employees get on track for a brighter financial future. We know that many people aren’t saving enough for tomorrow. Experts recommend contributing between 12 and 15% of one’s total salary (including employer contribution) to have a better chance of a comfortable retirement. So helping people save more can make a massive difference to their future.

Why changing provider isn’t all it’s cracked up to be

You might be wondering if changing your pension provider could be a solution to these issues. But this isn’t necessarily the right path. 

For a start, the majority of mainstream workplace pension providers are offering a fairly similar experience for employees. Charges on default funds are capped at 0.75% for employees, for example, so you might not find a better deal for your staff. Additionally, mainstream workplace pension providers tend to provide a limited range of funds for employees to invest in. That’s because, ultimately, default funds tend to have better outcomes for the majority of employees. So changing providers may not provide a very different investment experience. 

That’s without factoring in the time and energy it takes to find and choose a new provider, and then transfer your data. 

Luckily, there’s a lot you can do to improve your pension package even without changing providers. Third party tools like Maji provide market leading employee experiences and can work across all pension providers to help you upgrade and refine your offer.

What does a market leading offer look like?

Britain’s top companies are offering their employees more than just the default minimum contributions:

  • Higher employer contributions: Top companies help employees reach their 12-15% contribution by increasing their contribution to the pension. The average UK employer is contributing 4.5% rather than the default of 3%, rising to 9.5% in the financial industry.
  • Contribution matching: One way to help employees increase their contributions at the same time is to offer a matching scheme, where an employer raises their contribution to match what an employee is putting in. A sizeable portion of FTSE 350 companies offer a matching scheme, with an average match of 4.5%. 
  • Financial wellbeing support: Incorporating the pension into a full financial wellbeing strategy is a top-three priority for FTSE 350 companies. 68% are planning to enhance tools and educational materials for employees in particular. Top companies understand that employees want more support with their pension in order to meet their financial goals.   

Seven things you can do to make your offer stand out

  1. Give your employees more take-home pay with salary exchange: Salary exchange (also known as salary sacrifice) is a more tax efficient way to arrange your pension. Because contributions are taken before tax, rather than afterwards, both employer and employee save money on National Insurance contributions. So, employees will get more take-home pay (10% of their contribution if they are lower-rate taxpayers, 2% if higher-rate). You will need to take care of some compliance paperwork if making the switch, but for most companies it is a no-brainer to offer this scheme.
  2. Share your salary exchange savings with employees: Not only do employees get more take-home pay in salary exchange, but you as an employer will also make savings. No wonder 85% of very large companies are running their pension this way! Many companies choose to reinvest the savings into the business, but others choose to share them with employees. There are two options for this: you could add some or all of it to your employees’ pension pots to give your employer contribution a boost. Or, you could invest this money in additional employee benefits like a financial wellbeing resource. Sharing your savings is a good way to ensure staff are motivated to take advantage of the salary exchange scheme.
  3. Increase your employer contribution: Help your employees save enough for tomorrow by putting more into their pension than the current minimum default of 3% of qualifying earnings. This can make for a very attractive recruitment offer, as well as helping current employees feel valued. And, their money will grow in their pension pot over time, so an increase of just 1% could be worth tens of thousands of pounds by the time they retire. 
  4. Offer a matching scheme: Matching offers all the advantages of raising your employer contribution, but can also encourage employees to raise their savings at the same time. You could choose to set a cap to make this more manageable, for example offering to match any contribution raises to a limit of 5%. This, in turn, can offer a target level for employees to save at that helps them reach the 12-15% recommended rate. Matching is another great way to show your employees you care about their future wellbeing.
  5. Raise employer contributions by switching to full pensionable earnings: The default setting for pension contributions is that they are made on a basis of qualifying earnings, i.e. an employee’s earnings between £6,240 and £50,270. For some employees, particularly those earning above the upper limit, basing the figures on full pensionable salary will significantly increase both the employer and employee contributions. NB: changing your arrangement away from qualifying earnings will mean you need to double check you’ve met the minimum contribution basis, and fill in a self-certification every 18 months. This only takes a couple of minutes. 
  6. Integrate your pension into your financial wellbeing strategy: Saving for the future can get overlooked in the midst of worries about surviving today. And, at the same time, it can be hard for employees to start putting more aside for retirement if they have other financial goals or needs. So integrating your pension into a wider-ranging financial wellbeing strategy can help employees understand the value of your investment, as well as reducing their money worries overall. A financial wellbeing strategy could encompass education, provision of tools and resources, or workshops. 
  7. Engage your employees with the pension: If you’ve put in the effort to overhaul your pension package, you’ll want your employees to know about it! But simply sending out an email might not be enough to capture their attention. Using technology, making the pension more relevant to their lives, and organising opportunities to discuss the topic can be more effective. 

Maji is a financial wellbeing tool for the 21st century that allows you to highlight your pension offer and integrate it into a wider strategy to address your employees’ holistic financial needs. With a sophisticated financial planning tool, Masterclasses from financial experts and personalised digital coaching, users can quickly improve their financial wellbeing. Additionally, Maji can help you switch over to salary exchange quickly, with compliance taken care of, and empower your employees to raise their savings. Contact us to find out more. 

Photo by Mimi on Unsplash

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