It’s time to transform pensions into valuable assets

Offering competitive employee benefits is a powerful tool for attracting and retaining top talent. One often underestimated benefit is a well-structured pension plan. In the UK, auto-enrolment requirements mandate employers to provide a workplace pension scheme, but going beyond the minimum requirements can make pensions a standout employee benefit. In this article, we will explore how to make pensions a great employee benefit by considering various strategies, including changing earnings basis, contributing more than the minimums, and implementing Salary Exchange. 

Changing Earnings Basis: Tailoring Pensions to Employee Needs

One way to make pensions more appealing is by changing the earnings basis. Auto-enrolment typically uses ‘qualifying earnings‘ as the basis for contributions, which includes earnings between £6,240 and £50,270 (for the 2022/23 tax year). However, employers can choose to use alternative bases, such as ‘basic salary’ or ‘total earnings.’ 

Basic Salary (Pensionable Pay Set 1): Using basic salary as the earnings basis can result in higher pension contributions for employees and potentially more significant retirement savings. 

Total Earnings (Pensionable Pay Set 3): Total earnings encompass a broader range of income, including bonuses and overtime. This can be especially beneficial for employees with variable income. 

By offering different earnings bases, you allow employees to select the one that aligns best with their financial goals and lifestyle, making the pension scheme more flexible and attractive. 

Contributing More than the Minimums: Generous Employer Contributions

While auto-enrolment mandates minimum employer contributions, businesses can stand out by contributing more generously to their employees’ pensions. This can be a powerful incentive for employee retention and loyalty. 

Enhanced Matching: Consider matching employee contributions at a higher rate than the legal minimum. For example, you might match 5% of an employee’s contributions instead of the minimum 3%. 

Fixed Employer Contributions: Alternatively, provide a fixed employer contribution that exceeds the statutory minimum. This approach ensures that employees receive a specific pension benefit regardless of their contributions. 

Generous employer contributions not only demonstrate commitment to your employees’ financial well-being but also increase the overall attractiveness of your pension scheme. 

Implementing Salary Exchange: Tax-Efficient Saving

Salary Exchange is a tax-efficient way to save for retirement and can make your pension scheme more appealing to employees. Here’s how it works: 

Employees agree to exchange a portion of their salary for an equivalent employer pension contribution. This salary exchange reduces their taxable income, resulting in lower income tax and National Insurance contributions. You can calculate how much savings your company and employees are missing here using our calculator.

Benefits of Salary Exchange: 

Tax Savings: Employees pay less tax and NI, increasing their take-home pay. 

Lower Employer NI Contributions: Employers also save on NI contributions, which can be used to enhance pension benefits. 

Implementing Salary Exchange requires careful planning and communication with employees, but it can significantly improve the attractiveness of your pension scheme. 

Conclusion: A Valuable Employee Benefit 

A well-structured pension scheme can be a standout employee benefit, aiding in recruitment and retention efforts. By offering a range of earnings bases, contributing more than the minimums, and implementing Salary Exchange, you can tailor your pension scheme to meet the diverse financial needs and preferences of your workforce. Making pensions a great employee benefit is not only a smart HR strategy but also an investment in your employees’ long-term financial security and well-being. If you wish to review your current pension, we can help you with the most suitable for your company and employees.