Introducing a Pension Scheme to Your Small Business
If you’re starting your own small business, you may be feeling confused about providing your employees with a pension scheme. You’re probably already aware that by law you must automatically enrol your employees, but finding the right scheme can be difficult. With so many things to think about already, it’s easy to become overwhelmed. This post will help to break things down in an accessible way.
Check Your Own Pension
Before organizing pensions for your employees, make sure your pension is all in order. After all, how can you set up a scheme for others if you’re not well-informed about your own finances? Make sure all your previous pensions are in one place for better visibility, then you’ll know exactly how much you have and what you need to do to reach your goals. You can transfer your pension here.
Keep Employees Informed
You might already have a pension scheme for your employees and are considering finding a new one. Whether you’re introducing a new provider or hiring staff for the very first time, you need to make sure everyone has the right information from the get-go. Many of your employees may have already had pensions from previous workplaces, so will want to understand how yours differs.
Keep Costs in Mind
As a small business, you’ll need to make sure you aren’t spending too much on a pension scheme that could be more budget-friendly. While you always want the best for your employees, there are financial limits. Some pension schemes could charge you monthly or have larger costs upon signing up. If you see the scheme as a temporary solution while you find something more suitable, check your contract for any hefty cancellation charges.
Some pension schemes will invest all contributions the same way, while others give you more choice. Finding one with more variety can keep your employees happier, as they feel their needs are better taken care of. After all, anyone approaching retirement is likely to want their funds to be as secure as possible, while those just starting out in the world of work will want to make greater gains over time.
Net Pay or Relief at Source?
Pension schemes are usually split into two categories. The key differences are that net pay schemes mean contributions are taken from a member of staff’s gross salary. This means that they only pay tax on their net earnings. A relief at source scheme means the pension contribution comes out of an employee’s net salary, but only 80% of this actually comes out of their wages. It’s the pension scheme’s responsibility to then top up the amount, making it equal to the expected tax relief.
So which one is right for your small business? If your employees aren’t earning enough to pay tax, the relief at source scheme can benefit them more. This is because the pension provider will offer them the tax relief top-up no matter the tax they’ve paid.