Finding the right small business pension provider

Hiring staff for your new business can be exciting but it comes with a raft of legal obligations for you as an employer.

This includes choosing the right small business pension for your employees.

A workplace pension allows staff to save for their retirement over the course of their working life.

A poorly chosen small business pension means less money for your staff when they retire.

It can also cost you more as a business in administrative charges, so it pays to choose the best pension scheme.

Small business pension obligations

Under the Pensions Act 2008, every UK employer must put eligible staff into a workplace pension scheme and pay into it. This is known as 'automatic enrolment'.

While it might seem like an extra burden, setting up automatic enrolment into a workplace pension is straightforward.

You must enrol any employee aged between 22 and the state pension age, and who earns at least £10,000 a year.

An employee must be enrolled into a pension scheme from the first day they start work and make contributions to the scheme.

If staff become eligible, such as their salary increases above £10,000, you need to enrol them within six weeks.

Both the company and your staff will pay into the pension scheme for as long as the employment lasts.

As a business, you need to pay the equivalent of 3% of their earnings into the pension fund.

Your business can face heavy fines if you fail to set up a workplace pension.

To ensure your business is up-to-date with workplace pensions, read our guide to auto enrolment pension options for small businesses.

Choosing the right small business pension provider

The first step is to choose a small business pension.

There are lots of different workplace pensions on offer, making selecting the best one challenging.

It can take some time to set up a small business pension, so start as soon as you plan on hiring staff.

You can find a pension scheme yourself or ask your accountant or financial advisor for their help.

The Pensions Regulator has useful tools to get your business started with auto enrolment.

What to look for in a small business pension

A small business pension should be a well-managed scheme that's approved by the Financial Conduct Authority (FCA).

It should also provide value for money while protecting retirement savings.

All schemes should be easy for staff to join.

Employees shouldn't have to do anything extra to enrol nor should they have to choose their own investments.

Be careful of schemes with onerous requirements, such as a minimum number of employees on payroll or those that accept only staff that earn above a certain pay threshold.

When choosing the best small business pension, check the following:

Pension scheme costs

Workplace pension schemes have different charges, such as monthly charges or a single up-front charge that covers the life of the pension.

Ask for clear examples of costs to both the company and to staff, both in the short term and over the life of a pension.

Watch out for exit fees if you want to change scheme provider in the future.

It's worth getting a range of example fees for lower-paid and more highly paid staff to help you choose.

Staff tax relief

Small business pension schemes use one of two tax relief schemes: 'relief at source' and 'net pay arrangements'.

This is an important consideration for lower-paid staff.

If you employ staff who don't pay income tax, they will only get tax relief if you use a relief at source scheme.

Otherwise, these staff will need to pay 20% more for their pension.

Staff that pay income tax enjoy tax relief on both schemes.

However, with a relief at source scheme, higher and additional rate taxpayers have to claim full tax relief by completing annual self-assessment.

Investment options

Most workplace pensions have a default investment strategy for contributions.

Look for schemes that have a range of investment approaches, such as more aggressive equity-based strategies for younger workers and lower-risk investments for staff approaching retirement.

Other considerations may apply depending on your workforce, for example some schemes specialise in ethical investments or those complying with Sharia law.

Pension communication

Check how the provider communicates with your staff, asking for examples of annual statements.

Scrutinise how clearly information such as projected retirement savings, investment growth, and charges cost is presented.

Ensure that communications can be sent in large type, different languages and braille if needed.

Where to find a small business pension scheme

Most of the larger pension providers offer small business pension schemes.

Leading pensions providers include: Aviva, Scottish Widows, Royal London, The People's Pension and Standard Life.

It's also worth checking the government-backed workplace pension scheme, Nest. It's free for employers to use and can be managed entirely online.

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Disclaimer: While we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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