A decade has passed since auto-enrolment was first introduced (2012). The number of UK employees offering a workplace pension scheme has increased significantly since that time. After salary, bonus and car allowance, the pension contribution can be one of the most valuable aspects of a reward package, but it does not always command the same importance as those other elements. I have looked at some of the national data, surveyed our clients and spoken to a number of experts to present my latest article on employee benefits on pensions.

The type of scheme on offer can have a material impact for the employer (in terms of cost) and for the employee (for financial gain):

• Defined Benefit / Final Salary offer the most significant benefit to employees, but over 50% of the schemes are closed to new members.
• Career Average
• Defined Contribution / Money Purchase - the most common scheme – adopted by over 70% of employers.
• National Employment Savings Trust (NEST)

Our survey to employers across Yorkshire and the East Midlands produced some interesting results:

The employers we spoke to offered employer funded contributions (outside of employee contributions or those via salary sacrifice) that ranged from 5% to 10% of pensionable earnings. There was some correlation between those that offered more and where the most positive impact was felt, but it was not totally related.

The most eye-catching observation was that very few had reviewed their pension schemes in the last two years, but over 90% intended to do so in 2023 or 2024.

To find out more on why this was the case, we spoke with Ian Goodwin, Partner of Employment Tax at Mazars:

“We are seeing employers that are privately owned businesses looking at Pension provision for employees, particularly those at management level and above. Many have used well-known pension schemes such as NEST initially and are now looking at reviewing these to see if they are still the most appropriate and effective pension schemes for their employees who are looking at how they can best save towards their retirement. Given the pressures on costs too, increasing employer contributions has been seen as a more cost effective (albeit not instant) method of improving the reward of employees without giving the employer additional employer NIC or Apprenticeship Levy Charges to pay.

Alongside this, employers are looking at giving their employees the option to exchange any potential bonuses for additional employer pension contributions; and employers are putting in place Pension Salary Sacrifice arrangements to help save NIC for both employee and employer, increasing net pay and giving employers potential funds to invest in other benefits / employee reward ideas which will help attract and retain current and future employees.”

OUR ADVICE TO EMPLOYERS

• Review your scheme

90% of the employers we spoke to planning a review of their pension scheme in the next year. It would appear to make sense for all employers to consider doing this. We asked Ian Goodwin if he was surprised at this and to share his advice:

“We definitely recommend that every employer reviews their pension scheme, as well as wider reward planning given how the work and pay environment has changed over the past few years – their current arrangements may be costing them and their employees a lot of money that could be better spent elsewhere. Also, given the need to address compliance matters in relation to pension contributions for employees, it is important to review governance in relation to Auto-Enrolment in order to be compliant and avoid enforcement action and penalties from the Pension Regulator.”

• Communicate the value of your pension scheme to your team

Pensions can be an element of a reward scheme that are important when taking a job and when considering leaving. They often get lost or forgotten about in the intervening period. When we interview candidates across all levels of seniority, we always ask for a full breakdown of their package – the employer pension contribution is the most common one to be forgotten.

We can benchmark your pension scheme against a cohort of comparable employers. For those who are offering an attractive contribution (typically over 5% on a DC scheme), there are options available to create more positive impact with your current and future team members.

Sheffield Teaching Hospitals are an employer with an outstanding overall proposition. Their pension contribution is generous but has not been as effective as it could be at attracting new candidates.  As a part of our candidate attraction strategy for them, as their exclusive recruitment partner for their accountancy and finance team, we have prepared a candidate brochure that breaks down the NHS pension scheme and exactly what it means to potential candidates:

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In summary, although a pension is a benefit that is certainly expected from employers, it is worth reviewing for both your benefit, in terms of cost and in terms of candidate attraction and retention, and that of your employees.