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pension scheme for small business

Set up and manage a workplace pension scheme

Employers and eligible staff.

Employers have to provide a workplace pension scheme for eligible staff as soon as your first member of staff starts working for you (known as your ‘duties start date’).

Check you’re an employer

You’re usually an employer if you deduct tax and National Insurance contributions from an employee’s wages.

Check you’re an employer if you’re not sure what your pension responsibilities are, for example you employ a carer or someone to work in your home.

Who you must enrol

You must enrol and make an employer’s contribution for all staff who:

  • are aged between 22 and the State Pension age
  • earn at least £10,000 a year
  • normally work in the UK (this includes people who are based in the UK but travel abroad for work)

If staff become eligible because of a change in their age or earnings, you must put them into your pension scheme and write to them within 6 weeks of the day they meet the criteria.

If you’re not sure what the state pension age is you can use the State Pension age calculator to find out.

You do not have to enrol an employee if they give you proof of their lifetime allowance protection .

Part of Get your business ready to employ staff: step by step

Step 1 : decide what type of employee you need.

  • Check whether you need full time or part time staff
  • Check the different types of employment status

and Check you can afford to take on employees

  • Check how much the National Minimum Wage is
  • Find out how much National Insurance you need to pay for your employees
  • Check how much sick pay your employees are eligible for
  • Check how much you need to pay towards your employee's pension
  • Check how much Maternity Leave you need to pay your employees
  • Check how much Paternity Leave you need to pay your employees

Step 2 : Make your workplace safe and accessible for employees

  • Prevent discrimination
  • Make your workplace accessible for employees with disabilities or health conditions
  • Keep employee information and data safe
  • Fire safety
  • Health and safety

You also need to make checks when you recruit and employ someone.

  • Find out what you need to check when you employ someone

Step 3 : Register as an employer and set up PAYE

You need to register with HMRC so you can pay tax and national insurance for your employees.

  • Register as an employer and set up PAYE
  • Choose how to run payroll
  • If you decide to run payroll yourself, choose payroll software

Step 4 : Check your responsibilities around workplace pensions

  • Understand your pension responsibilities as an employer

Step 5 : Get Employers' Liability insurance

  • Find out about Employers' Liability insurance

Step 6 : Recruit and employ staff

  • Employ someone

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Step 1. Choose a pension scheme

You should do this as soon as you can as it can take some time to complete.

You'll need to choose a pension scheme that is set up for automatic enrolment. You and your staff will pay money into this scheme to help your staff save for their retirement.

You'll need to find a scheme yourself or get help from your accountant or a financial adviser.

You should look at different schemes before you decide which is suitable for you and your staff.

The following have told us they are open to small employers:

  • Creative Pension Trust
  • Cushon Master Trust
  • The Lewis Workplace Pension Trust
  • National Employment Savings Trust (NEST)
  • NOW: Pensions
  • Penfold Pension
  • The People’s Pension
  • Smart Pension Master Trust
  • Standard Life Workplace Pension
  • True Potential Investments

There are a number of things you should check before you choose a pension scheme. This includes whether it will accept all your staff, how much it will cost, whether it uses the best tax relief method for your staff and whether it will work with your payroll. Find more information on how to choose a pension scheme .

If you have an accountant, they may be able to help you find a scheme or a financial adviser that can help.

You can also use the MoneyHelper retirement advisor directory , which contains advisers who can help you choose a pension scheme for automatic enrolment.

To check if an adviser is authorised by the Financial Conduct Authority, search the FCA register .

* Please note that there are many other pension schemes available that aren't listed on this website. There may also be other ways for schemes to demonstrate to employers that their scheme is well run.

We cannot recommend or endorse any particular pension scheme or any organisation. Inclusion of a scheme or mention of any organisation on this website does not guarantee their suitability. These web pages are provided for information and guidance only.

What's next?

Now that you've chosen a pension scheme, you must put your staff into it. The next step will help you to do this.

< I'm an employer who has to provide a pension

Step 2. Work out who you need to put into a pension scheme >

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What are you looking for, workplace pensions for small businesses.

  • 1. Does my business need to have a workplace pension scheme?
  • 2. What is automatic enrolment?
  • 3. Workplace pension schemes: employer costs
  • 4. What if I don’t have a workplace pension scheme?
  • 5. Checklist: Choosing a workplace pension scheme
  • 6. Pensions for the self-employed
  • 7. How do self-employed pensions work?

If you have staff, you’ll need to have a workplace pension scheme in place. In this article, we’ll explore what this means and how to pick the best pension option for your business – or, alternatively, what to do if you’re self-employed.

Does my business need to have a workplace pension scheme?

If your small business employs staff, it must provide a workplace pension scheme for eligible staff, as soon as you take on your new team member (this is known as your “duties start date”).

As explained on government website GOV.UK : “You must enroll and make an employer’s contribution for all staff who:

  • are aged between 22 and the State Pension age
  • earn at least £10,000 a year
  • normally work in the UK.”

If an employee later becomes eligible to join your workplace pension scheme, for example, because they reach the age of 22 or start to earn more than £10,000 a year, you must put them into your workplace pension scheme and write to inform them of this within six weeks of the day they became eligible.

What is automatic enrolment?

Putting staff into such a workplace pensions scheme is called “automatic enrolment” and its phased introduction began in 2012.

As explained on the Pensions Advisory Service website : “All eligible workers should have been automatically enrolled in their employer’s workplace pension scheme by 1 February 2018.”

Employees can opt out of the scheme , however, employers are required to automatically re-enrol eligible staff into the workplace pension scheme every three years, even if the employee again decides to opt-out (it’s their decision).

Workplace pension schemes: employer costs

You must pay at least 3% of your employee’s “qualifying earnings” into their pension via your workplace pension scheme. According to GOV.UK: “Under most schemes, it’s the employee’s total earnings between £6,032 and £46,350 a year before tax. Total earnings include:

  • salary or wages
  • bonuses and commission
  • statutory sick pay
  • statutory maternity, paternity or adoption pay.

“You must deduct contributions from your staff’s pay each month. You’ll need to pay these into your staff’s pension scheme by the 22nd day (19th if you pay by cheque) of the next month.”

Employer contributions for each employee must be paid by the date agreed with your workplace pension provider every time you run your payroll. Missed payments must be backdated. You can be fined if your payments are late or if you don’t pay the correct amount.

What if I don’t have a workplace pension scheme?

If you don’t have a workplace pension scheme and plan to take on staff that qualify – you must set one up. The Pensions Regulator website offers employers an online tool, which may tell you whether you need to set up a workplace pension scheme.

There are four stages to the process:

  • Choose a pension scheme – one that can be used for auto-enrolment.
  • Decide who should be in the scheme – not all employees may qualify.
  • Write to your staff – to explain how automatic enrolment is relevant to them.
  • Declare your compliance – The Pensions Regulator provides a handy declaration of compliance checklist .   

Checklist: Choosing a workplace pension scheme

There’s a lot to think about when choosing a workplace pension scheme, not just cost. Here are some useful steps to follow when working out the best workplace pension scheme for your business. 

You must be logged in to use this checklist

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Pensions for the self-employed

According to government estimates, there are 4.8m self-employed people (AKA sole traders ) in the UK. If you’re one of them (or you’re considering going self-employed), you too should pay into a pension scheme.

You won’t have an employer contributing to your pension, of course. But, as explained on the Money Advice Service website: “There are still some tax breaks you shouldn’t miss out on. For example, you’ll get tax relief on your contributions, up to the lower of your annual earnings or £40,000 a year. This means if you’re a basic-rate taxpayer, for every £100 you pay into your pension, the government will add an extra £25.”

How do self-employed pensions work?

You’re advised to start paying into a pension as soon as possible, so that you can contribute more, get greater tax relief and have more time for the value of your money to grow.

Most self-employed people use a personal pension for their pension savings. There are three types:

  • Ordinary personal pensions (offered by most large providers)
  • Stakeholder pensions (the charge is capped at 1.5% and you can stop and start premiums without penalty) and
  • Self-invested personal pensions (SIPP – which offer a more diverse range of investment options, but with higher charges).

Usually, you can choose how you want your money to be invested – and how you don’t. The provider will invest in a range of funds and claim tax relief and add this to your pension savings.

The more you invest and the better the fund performs, the more you’ll receive when the pension is payable. You can save as much as you like towards your pension each year, however, you’ll only get so much tax relief.

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pension scheme for small business

What is a Company Pension? A Guide for Small Business Owners

Understanding and setting up a company pension scheme can be complex, especially for small business owners. This comprehensive guide will demystify UK pension rules, explore employer obligations, and provide a roadmap for setting up a pension plan for your limited company.

What is a Pension: The Basics

What is a pension.

Simply put, a pension is a financial tool that provides income during retirement. It's an essential part of a comprehensive financial plan, allowing individuals to accumulate savings during their working years and spend those savings as income when they retire.

On the other hand, a company pension scheme, also known as an occupational or workplace pension, is a retirement savings plan set up by an employer for the benefit of its employees based in the UK.

Under these schemes, both the employee and the employer make regular contributions towards the employee's retirement fund. The total amount in the fund will depend on the amount contributed, the length of time those contributions have been made, and the investment performance of the fund.

The Different Types of Pensions

There are two main types of company pension schemes in the UK:

  • Defined Benefit (DB) Schemes: These are also known as 'final salary' or 'career average' schemes. The benefits are received at retirement and are based on a formula, often factoring in the employee’s salary and length of service. The pension is guaranteed, regardless of how the investments perform.
  • Defined Contribution (DC) Schemes: Also known as 'money purchase' schemes, the benefits received at retirement depend on the amount that's been contributed and how well the investments have performed. The risk is on the individual, not the employer.

Why it Matters for Employers and Employees

Offering a pension scheme to employees is not just a legal requirement for most UK employers (more on that below) but also an important part of your overall compensation and benefits package.

A robust pension scheme also helps your employees prepare for retirement, contributing to their long-term financial stability, reducing financial stress, and ultimately leading to a more motivated and productive workforce.

In fact, a well-structured pension scheme can attract and retain top talent by demonstrating your commitment to your employees' financial wellbeing and future.

Legalities of Pension Schemes for Employers

Do i have to set up a pension plan for my limited company.

Yes, according to the Pensions Act 2008, it's mandatory for all UK employers, including limited companies, to set up a pension scheme for their qualifying employees.

Since 2012, all employers in the UK are legally obliged to automatically enrol their employees into a pension scheme if they are aged between 22 and State Pension age, earn more than £10,000 per year (or £833 per month, or £129 per week), and work in the UK. This is known as automatic enrolment.

Employees can opt out if they wish, but if they stay opted in, you’ll both need to contribute towards their pension pot.

What Happens If I Don't Set Up a Pension Scheme?

Failing to set up a pension scheme when required can lead to a multitude of serious consequences.

The Pensions Regulator, the UK's watchdog for workplace pensions, has the authority to enforce compliance and can issue escalating penalties. The fines can range from a £400 fixed penalty to a varying daily rate ranging from £50 to £10,000, depending on the size of your business. More severe cases of non-compliance can even result in court action, which could have further financial implications.

Moreover, not offering a pension scheme can damage your reputation, potentially affecting your ability to attract and retain talented employees. It can also lead to employee grievances and lowered morale as a pension is now seen as a standard benefit in full-time employment.

What are UK Pension Contributions Minimums in 2023?

As of 2023, the minimum total contribution to a pension scheme is set at 8% of an employee's qualifying earnings, of which at least 3% must be contributed by the employer. The remaining 5% is typically covered by the employee, with tax relief adding a portion as well.

It's worth noting that these are the minimum requirements and employers can choose to contribute more if they wish. This can be an attractive perk for employees. The rules around pension contributions are subject to changes in UK pension law, and as such, employers should ensure they stay abreast of the latest legislation to remain compliant and offer the best benefits to their employees.

Setting Up a Pension Plan for Your Limited Company

Steps to setting up your company pension plan.

  • Setting up a pension scheme for your limited company involves a series of steps, starting with selecting a pension scheme that is suitable for automatic enrolment. This scheme should be accessible, allow for automatic enrolment of all eligible staff, and facilitate the minimum legal contributions.
  • Next, you need to enrol all eligible employees into this scheme. Eligible employees are usually those who are aged between 22 and State Pension age and earn more than £10,000 per year.
  • Once the enrolment process is completed, set up regular contributions to your employees' pension scheme. These should be deducted from employees' wages and paid into their pension pots.
  • Lastly, it's crucial to maintain accurate records of your pension scheme, including members, their earnings, and the contributions made. This will help ensure compliance and accuracy in the event of audits or inspections.

Calculating Your Contributions

Calculating your pension contributions involves a careful examination of your employees' qualifying earnings.

Qualifying earnings encompass a range of income types, including salary, wages, commission, bonuses, overtime, and certain statutory payments such as sick pay and maternity, paternity or adoption pay.

As of 2023, the minimum contribution from employers is set at 3% of these qualifying earnings, but you may choose to contribute more.

It's essential to calculate these contributions accurately and consistently to ensure you're meeting your legal requirements and providing the correct benefits to your employees.

Within Onfolk, pension contributions are automatically calculated within your payroll every month, so you’re always compliant with UK employment law.

Commonly Asked Questions on Pensions and Employers' Obligations

Do i need to contribute if my employee opts out.

If an employee chooses to opt out of the pension scheme during the one-month opt-out window, you as the employer are not required to make contributions for that employee. However, every three years, you are obligated to re-enrol all eligible employees who have previously opted out, giving them another opportunity to start contributing.

Failure to comply with the UK's automatic enrolment duties can lead to significant consequences. The Pensions Regulator can issue a notice and a fine, and persistent failure could lead to court action. Moreover, it's important to note that providing a pension scheme is part of fulfilling your responsibilities as an employer and contributes positively to your company's reputation.

Can I Change Pension Providers?

Yes, you have the flexibility to change your company's pension provider if you feel another provider may offer a scheme that's more beneficial for your employees or your business. However, it's essential to ensure that the new scheme meets the criteria for automatic enrolment and that the transition adheres to the rules set by The Pensions Regulator to protect your employees' benefits. It's always recommended to seek professional advice before making such changes.

Establishing a robust pension plan for your employees is a meaningful way to invest in their future and yours. While the process may seem complex, understanding your obligations can help you navigate it effectively, resulting in a more financially secure future for your team. Always seek advice from professionals when needed, and use available resources for further guidance.

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Workplace pension schemes for your small business, what is a workplace pension.

A workplace pension is a scheme that employers are legally obliged to offer their employees to help them save for their retirement. 

As an employer, you must automatically enrol any eligible employees into a workplace pension scheme and contribute at least a minimum amount towards it. 

Current rules set the total minimum contribution at 8%, with at least 3% coming from the employer.

There are two main types of workplace pension schemes:

Defined contribution schemes

T hese are schemes where the money is paid in by both the employer and the employee’s contributions and then invested by a pension provider. The value of the pay-out can therefore rise or fall depending on how the investment performs.

Defined benefit schemes

a lso known as final salary schemes, these pay out a fixed amount depending on how long an employee has worked for you and how much they earned. However, they are a high-risk and expensive option for employers, which is why most are now closed to new members.

As an employer, you must automatically enrol any eligible employees into a workplace pension scheme and contribute towards it"

Is it a legal requirement to provide a workplace pension? 

Yes, both big companies and small and medium-sized enterprises (SMEs) must provide workplace pensions for their employees. And even businesses with just one employee are classed as employers.

Your legal duty to provide a workplace pension scheme starts on the day you first employ one or more people; failing to meet this duty could result in a fine of up to £10,000 a day, as well as a criminal conviction that could land you behind bars.

Should you opt for a government-backed provider? 

If you don’t employ many people, you may find it easier to use the government-backed National Employment Savings Trust ( NEST ) scheme. It’s free, easy to set up, and available to all, while the government involvement also makes it a low-risk choice.

However, private pension providers offer similar options that may be better suited to your employees’ needs. And as long as the provider is authorised by the Financial Conduct Authority (FCA), employees can get compensation should it go bust. 

Larger organisations, meanwhile, may prefer to maintain greater control by appointing a trust to run a pension scheme specifically for their employees. Further information on trust-based schemes can be found in the Pension Regulator toolkit . 

Whatever route you take, it’s worth consulting an independent financial adviser or accountant to make sure you choose the best workplace pension for your company.

It’s worth consulting an independent financial adviser to make sure you choose the best workplace pension for your company"

Things to consider when choosing a workplace pension scheme for your business

Cost to you.

Some schemes, such as NEST, are free of charge for the employer. Others involve paying a monthly fee, which may be linked to the number of employees concerned. Using a professional payroll bureau can earn you a discount with some providers.

Cost to employees

Employee costs such as annual management fees will depend on both your choice of pension scheme and the underlying investment fund.

Set up and maintenance

Choose a scheme that is easy to set up and integrates easily with your existing payroll will make the process much simpler. Looking for one that can be managed online will help with this.

Member experience

A self-service website makes it easier for employees to manage their pension savings, while an app and educational resources can help to encourage them to save more. It’s also worth choosing a provider that allows free transfers in, enabling employees to keep all their pension savings in one place.

Customisation

Features such as salary sacrifice can be attractive for both you and your employees. Look for a scheme that can be customised to the needs of the company and its workforce.

Look for a provider that offers enough choice to cater for a diverse workforce – without getting too complicated. Many auto-enrolment providers offer around five funds for employees to choose between depending on their investment objectives.

How to set up a workplace pension

Choose a scheme, enrol eligible employees, inform staff, set up employer and employee contributions, tell the pensions regulator, you're done.

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Can small businesses opt-out of providing a pension scheme?

No. Companies with one or more employees are required by law to offer a workplace pension scheme to all employees aged between 22 and the state pension age. So a small business cannot “opt out” of providing a pension – unless it is solely made up of directors who prefer not to have a workplace scheme. However, auto-enrolled employees can choose to “opt out” of the pension scheme within the first month.

How do pension schemes benefit employees?

Workplace pension schemes allow employees to save for retirement in a tax-efficient way while also benefiting from employer contributions to their pension pot, at a rate of at least 3% of their salary. Offering an attractive workplace pension is therefore one way to recruit and retain talented workers. 

What happens to the pension if an employee leaves the company?

If an employee leaves the company, the money in his or her workplace pension pot remains invested, but both the former employee and the employer generally stop paying into the scheme. Refunds (of their personal contributions) can be offered to employees who spent under two years at the company, while those going to new jobs can often choose to transfer their pots to their new employer’s scheme. If nothing is done, the existing pot remains invested until the employee reaches retirement age. 

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Complete Guide To Workplace Pensions For Small Businesses

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Tom Conner

Running your own small business is an exciting endeavour. However, there are many legal obligations you have to fulfil. One of which is to provide your employees with a Workplace Pension Scheme .

But where do you start? Putting a group pension scheme in place can be a daunting task. There’s a lot to consider, and it’s important to get it right. To help you get your head round it all, we’ve put together this guide on ‘Workplace Pensions For Small Businesses’.

Do Small Businesses Have To Provide A Workplace Pension?

The simple answer is yes. Reforms to the Pensions Act 2008 back in 2012 states all employers, regardless of size, must provide a workplace pension .

So, even if you only hire one employee, you have a legal obligation to set up a pension scheme. The scheme must also qualify for ‘ automatic enrolment ‘.

What Is Automatic Enrolment?

The government implemented automatic enrolment to help employees save more money for retirement. It helps to make joining a workplace pension scheme easier and quicker.

Employers must set up an auto-enrolment workplace pension scheme from the date they first hire someone. Eligible staff will then be automatically enrolled without needing to do anything.

Who Is Eligible For Automatic Enrolment?

Employers must enrol any employees who:

  • Are aged between 22 and State Pension Age
  • Earn at least £10,000 a year
  • Normally work in the UK and paid via PAYE.

workplace pension eligibility

How Does A Small Businesses Workplace Pension Scheme Work?

The most common type of workplace pension for small businesses is a ‘ Defined Contribution Scheme ‘. With this type of scheme, an employer and an employee make monthly contributions.

These then get invested into the scheme’s chosen pension fund, with the aim of increasing its value overtime. The final pension amount will depend on:

  • The amount of money paid in by employer and employee
  • How long an employee contributed
  • Investment performance
  • Charges deducted.

What Level Of Contributions Are Required?

Auto-enrolment sets out that 8% of an employee’s qualifying earnings must be contributed into a workplace pension. As the employer, you have to pay a minimum of 3%. The remaining 5% would come from your employee.

You could offer more than 3% and allow your employees to contribute less. For example, you could pay 5% while your employees pay 3%, as long as the total amounts to 8%.

How Are Workplace Pensions For Small Businesses Managed?

Defined contribution schemes can be trust based, which is what makes them suitable for small businesses. A trust-based scheme is managed by a board of trustees who oversee the management and investments on behalf of your employees. Generally, trust-based schemes are used by a single employer rather than having multiple companies using the same one.

The good thing about a trust-based scheme is that the funds are kept separate from the company. This means if the employer goes out of business, the employees still get their pension pot.

Master Trusts

There are also master trusts, such as Nest . This type of trust is managed externally and allows different, unrelated employers to use it. You could join a scheme and be one of 1,000 other employers using it.

Master trusts such as Nest are chosen by small businesses, as they are easy to set up and fulfil their legal obligation.

In some cases, small business owners don’t think there are any alternatives to the likes of Nest and The Peoples Pension . However, there often is. This is why it’s important to consider all the options before choosing a workplace pension. Not doing so could result in you setting up a scheme that isn’t necessarily the best for your specific setup.

pension scheme for small business

You may have heard of defined benefit schemes as well. These pension schemes offer employees a set benefit each year after they retire. Also known as a Final Salary Pension , it’s based on the member’s final salary or career average.

These used to be far more common, however today they are really only provided by large employers or the public sector. They aren’t suitable for small businesses.

Nick Nelms Senior Consultant, Employee Benefits

Compare Top 10 UK Providers

Benefits of small business workplace pensions.

Workplace pensions are more than just a legal requirement for small businesses. When set up correctly, it’s a highly valuable benefit for you and your employees. We show you how below:

  • Attract & retain top talent Attracting and holding on to top talent is crucial for small businesses. Providing a workplace pension that stands out from your competitors can help give you the competitive edge
  • Tax benefits Allowing contributions to be made via salary sacrifice can provide you and your employees with big tax savings. It can also reduce the amount you pay in National Insurance Contributions
  • Improved employee engagement Helping your employees save for their future can help reduce financial pressures. This can lead to lower levels of stress and enhance their overall wellbeing. Ultimately, helping to increase their levels of engagement and boost their performance at work
  •  Enhance reputation As a small business, offering a well thought out workplace pension can boost your reputation. This is especially true if you provide additional contributions above the required 3%. Employees look for employers who show that they care and value their staff
  • Being compliant Staying on top of your workplace pension can provide peace of mind. As an employer, you know that you are fulfilling your responsibilities and helping your employees save for their future.

Additional pension contributions are one of the most sought after employee benefits. With this in mind, it’s important to make sure you provide the best workplace pension you can.

56% of employees believe that pension provisions are an important factor when considering a new employer. In order to be competitive, a strong workplace pension is key.

What To Consider When Choosing A Small Business Pension Scheme

Setting up a small business workplace pension starts with research. It’s a good idea to see what’s available to evaluate your options and choose the right provider.

The best pension provider for a small business will depend on a variety of factors, such as:

Your Small Business Needs

Before you can pick a pension provider, you need to know what your small business needs from a scheme. Some questions to consider:

  • Are you looking for a low-cost pension scheme?
  • Do you need a pension plan that is quick and easy to set up?
  • Do you or your employees need any extra support?
  • Do you want to offer a salary sacrifice workplace pension ?

The above will help you identify the right workplace pension scheme for your small business.

Eligibility And Automatic Enrolment Duties

Most workplace pension schemes facilitate automatic enrolment. But it’s always best to double check that the provider you’re considering complies. This will enable you to fulfil your duties as an employer with ease.

Major providers often have a five employee minimum. This refers to how many employees you have employed, not how many you are going to enrol. Make sure to check your business meets the provider’s criteria. You should also check if you can complete your employer automatic enrolment duties.

EXPERT TIP  🤓 Not all providers accommodate small businesses. Some have restrictions on the size of a business they allow, depending on how many members of staff you have hired.

The Costs And Charges

When setting up a workplace pension for a small business, it’s important to factor in the setup and ongoing costs into your budget. This is key if you’re a small company, as you might not have the same financial freedom as a large corporation.

Here are some of the potential charges to think about:

  • Set-up fees
  • Annual Management Charge (AMC)
  • Payroll configuration
  • Cost of working with a financial adviser if necessary
  • Pension contributions as an employer
  • Monthly administration fees.

Tax Relief Methods

Another key consideration is the tax relief methods offered by a scheme. There are different options and the one you choose will determine how workplace pension contributions are taxed .

Relief At Source (RAS)

Relief at source takes an employee’s contribution from their salary after tax. This is the method most workplace pensions use.

For basic taxpayers (20%), the provider tops up the pension pot by 20%. The provider will then claim this back from the government as tax relief.

Here’s an example. For an employee earning a monthly salary of £2,000 and paying a 5% contribution of £100, £80 comes from their take home pay. The provider then tops it up by £20 and claims that amount back from HMRC.

Staff on a higher tax rate (40% or 45% dependent on earnings) will have to claim their full tax relief via HMRC.

With net pay, employee contributions come from their salary before tax. They then only pay tax on their remaining income, meaning they get full tax relief immediately.

Basic rate taxpayers receive full tax relief straight away. Higher or additional taxpayers have to claim back tax on their annual tax return. It’s important to note that any employees earning below the personal allowance of £12,750 won’t get any tax relief via the net pay method.

An employee earning £2,000 a month who contributes 5% (£100) will only pay income tax on the remaining £1,900. As they don’t pay tax on the £100 contribution, they save £20. The contribution really costs the employee just £80 due to the tax relief top up.

Salary Sacrifice

Small business workplace pensions can also be set up using salary sacrifice . This arrangement provides you and your staff with significant tax benefits.

Salary sacrifice is when an employee sacrifices part of their gross salary in return for a non-cash benefit, like a pension scheme. It means they don’t pay Income Tax or National Insurance (NI) on the money they sacrifice.

Staff can contribute to their pension pot without lowering their tax home pay. They can also enjoy higher pension contributions if you decide to pass back your NI savings.

EXPERT TIP  🤓 Allowing contributions to be made via salary sacrifice is an easy way of helping your employees save more for their retirement. The good news is, it won’t cost you any more to do this.

How Pension Contributions Are Invested

To help an employee’s pension pot grow over time, contributions are invested into funds. These funds vary in terms of risk. The higher the risk, the better the return is likely to be, however, this is not guaranteed. Pension providers will have multiple investment funds to choose from. Some even have hundreds.

Small businesses often opt for the default investment strategy, as it caters to the average member’s needs. However, this isn’t always the best option, as they might not provide the best return. Therefore, it’s important to look at all the funds a scheme offers and how they have performed.

Ethical & Sharia Funds

Your staff demographic may also want more specific funds. Some may want to invest in an ethical way. This would require a pension scheme with ethical investment options. Or, you may you have staff practising Islamic faith who would want Sharia-compliant funds.

Time And Admin Required

Setting up and managing a workplace pension scheme is time-consuming. There are many legal duties to fulfil, as well as continuous tasks to ensure you meet regulations.

One of these is the payroll setup. You need to be able to make adjustments to the payroll and ensure contributions are paid on time. This could result in extra admin and costs if your payroll software isn’t compatible. Other tasks include:

  • Managing scheme leavers You need to allow employees to leave the scheme if they wish and manage this process. If staff opt out within one month of enrolment, you must also refund their contributions
  • Rejoining staff You must let staff rejoin the pension scheme at least once a year if they’ve opted out. You must also re-enrol workers back in at least every three years if they have opted out and are eligible
  • Scheme certification You must provide certification every 18 months to The Pensions Regulator. This is if the scheme is on a basis other than qualifying earnings
  • Communication Employees need to be kept up to date about all relevant pension scheme information
  • General admin You’ll need to keep records of how you’ve met your legal duties. You must also review the pension scheme every three years (Triennial Review) to ensure it remains a qualifying scheme.

All small businesses should evaluate whether they have the resources to complete these tasks or if getting expert help would be a better option.

At Drewberry™, our financial advisers can take the workload off you and help complete the admin tasks. We can also ensure you pick the right scheme and meet all legal requirements. For help, pop us a call on 02074425880 or email [email protected] .

Support And Resources Provided

Most workplace pension scheme providers have a wealth of resources for employers and employees. Welcome packs, webinars, and online portals are just a few examples.

The level of support your small business needs, however, will depend on you and your eligible employees.

Think about:

  • How much extra support might your team need?
  • What resources does the provider offer to help staff better understand their pension?
  • How is the workplace pension scheme managed?
  • Does the provider offer a user friendly online platform to help with employee engagement and scheme management?

Make sure to check what’s on offer when researching workplace pension schemes. Support can be beneficial to a small business, especially if you don’t have the time to offer it yourself.

Workplace Pension Provider Reviews

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How To Set Up A Pension Scheme For A Small Business

There are several steps to consider when setting up a workplace pension for a small business. These are:

1. Confirm Your Small Business Is An Employer

Is your small business classed as an employer? If your company is liable for tax and National Insurance Contributions for one or more employees, you are an employer. You’re therefore obliged by law to provide a pension scheme.

2. Assess Your Workforce

Next step is to assess your workforce. Which members of staff meet the criteria for automatic enrolment? We listed the necessary criteria at the start of this guide. This is a vital step, as it provides you with the information you need to enrol your eligible employees.

Some things to think about:

  • Do you have any low earners?
  • Any seasonal or temporary staff?
  • Are you planning to postpone your auto enrolment duties?

The above can affect who is eligible to enrol in your new workplace pension scheme.

3. Ensure You Can Pay Minimum Contributions

You have to contribute to your employees’ pension pots. This is an ongoing cost for your business. Employers must pay at least 3% of an employee’s qualifying earnings into their pot each month. Although employers can contribute more if they wish, but not less.

4. Choose A Pension Provider

Choosing the right workplace pension scheme isn’t easy, as demonstrated in the factors you need to consider. Some employers may need extra help when it comes to this step. Fortunately, there is support available.

The use of a third party, like our team at Drewberry, is a great idea if you can afford it. Using their expertise, our advisers can recommend a pension scheme for your small business.

5. Ensure Your Scheme Is Compliant

There are several things to do for a pension scheme to be compliant with The Pensions Regulator, including:

  • Declaring compliance with The Pensions Regulator
  • Assessing your workforce
  • Informing your employees of the scheme in writing
  • Allowing staff to opt out if they wish
  • Paying contributions on time
  • Completing re-enrolment duties every three years
  • Keeping records of your scheme and duties performed.

6. Communicate To Employees

Communication is key when it comes to workplace pensions. You are legally obliged to provide certain information, but it’s important to go one step further. For your team to truly value their pension, they need to understand the benefit and its worth.

The good news is, your employees want to know more about their pensions too. Our latest Workplace Pension Survey found:

  • 27% of employees aren’t satisfied with the level of communication from their employers about their pension
  • 58% want help to better understand if they are saving enough for retirement
  • 48% don’t understand tax relief or salary sacrifice.

Ensuring your staff clearly understand their workplace pension can help them to value it as a benefit. You’d be surprised at the impact good benefits can have.

27% of staff say that employee benefits and perks make them happy and it’s well known that a happy and healthy workforce is a more productive one.

As a small business, you might not have the time and resource to provide regular communications about your workplace pension. Many providers offer resources, such as webinars and guides, which you can utilise.

Or, if you get the help of an independent expert such as Drewberry, we can help you provide all the communication you need.

Common Workplace Pension Questions

When do you have to offer a workplace pension scheme.

Employers have to offer a suitable workplace pension scheme as soon as they hire their first employee. Then, whenever a new staff member joins, the employer has to assess their eligibility and enrol them into the scheme automatically.

How can small businesses prepare their employees for retirement?

A small business can help prepare their employees for retirement by providing a workplace pension scheme that suits their employees’ needs. Employers can also further their knowledge of pensions and retirement planning by offering financial education in the workplace .

Not only will this help staff to have a better understanding of what they need to do to achieve a comfortable retirement, it can also support general financial wellbeing.

How much does it cost to match my employees’ pension contributions?

If you want to offer employer pension contributions above the 3% minimum, the cost will vary on several factors. To match your employees’ contributions, the price depends on how much your eligible staff earn and how many members you have enrolled in the scheme.

The Pensions Regulator has a handy online contributions calculator to help you estimate the cost.

Compare Workplace Pension Providers And Get Expert Advice

It’s essential to compare pension providers to find the right one for your small business. Without adequate research, you might pick a scheme that isn’t cost effective or doesn’t suit your needs. Ultimately, choosing the wrong provider may cost your small business more than necessary.

We know that workplace pensions can be confusing, as there’s so much information to absorb. It’s also not a straightforward decision to make for your employees.

If you’d like extra support when choosing your small business pension, speak to one of our advisers. We help many small businesses with choosing and setting up their employee benefits . As experts in the UK pension market, our team can provide recommendations for your company. We can also help you set the scheme up and assist with admin.

For expert advice, don’t hesitate to get in touch with us. You can call us on 02074425880 or email at [email protected] .

Why Speak to Us?

We started Drewberry™ because we were tired of being treated like a number.

We all deserve a first class service when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

  • We are award winning 🏆 independent insurance advisers who work with all the leading UK insurers
  • You’ll speak to a dedicated expert from start to finish
  • We are very proud of the 3703 and growing independent client reviews rating us at 4.92 / 5
  • We are authorised and regulated by the Financial Conduct Authority. You can find us on the financial services register here 🧐
  • Claims support when you need it most.
  • Business Owner
  • Employee Benefits

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A Guide to Getting a Pension

Here’s how to find a job that will provide for you in retirement.

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The majority of employees who work for utility companies have pension benefits.

A traditional pension plan provides a steady income to former employees. Once retirees meet the job tenure and age requirements, they receive regular monthly payments throughout their lifetime. A minority of private industry workers (9%) were provided with a traditional pension plan through their jobs in March 2021, according to Bureau of Labor Statistics data. However, a few career fields continue to offer traditional pension plans .

Here's how to get a job that will provide you with a stream of payments in retirement:

  • Get a government job.
  • Join a union.
  • Work for a big company.
  • Join a very small firm.
  • Move to the Northeast.
  • Join the management track.
  • Work full time.
  • Earn a large income.
  • Carefully consider your profession.
  • Stay at the same job for much of your career.
  • Marry someone with a pension.
  • Create your own pension.

10 Jobs That Offer Traditional Pensions

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Get a Government Job

Among state and local government workers, 86% had a traditional pension plan in March 2021. "Traditional pensions are slowly disappearing, but they're still widespread among government workers," says Richard Johnson, director of the program on retirement policy at the Urban Institute. " The federal government and most state and local governments provide traditional pension coverage to their employees, although the benefits have become less generous in recent years."

Primary, secondary and special education teachers enjoy almost universal (99%) traditional pension plan coverage . Members of the protective service including police and firefighters (90%) and those employed working with natural resources, construction and maintenance (90%) also enjoy strong rates of pension membership. Government workers involved in health care and social assistance (72%) or who teach at colleges, junior colleges and universities (83%) have slightly lower rates of pension coverage, although still much higher than in the private sector. Many state and local government employees (40%) remain eligible for the traditional pension plan if they work part time.

Join a Union

A union card just might be your ticket to better retirement benefits. Unions negotiate with company management for better retirement benefits for their members. That's why 79% of union members continue to enjoy traditional pension plans, compared to just 17% of nonunion employees. Collectively bargaining for better retirement benefits often yields better results than negotiating on your own.

Work for a Big Company

Large employers are much more likely to provide a traditional pension plan than small businesses. Among firms with 500 or more workers, 56% have a traditional pension plan. Only 26% of employers with between 100 and 499 workers provide a pension, and it drops to 11% among companies with fewer than 100 employees. "In the private sector, traditional pensions are still common among large, unionized employers, but they are almost unheard of in small employers," Johnson says.

Join a Very Small Firm

Most small businesses don't provide traditional pension plans to employees, but the exception is ultra-small companies with five or fewer employees. Sometimes small groups of professionals, such as doctors, dentists or lawyers, will set up a pension to defer some of their compensation for retirement.

Move to the Northeast

Jobs in the Northeast are more likely to provide traditional pension plans than employment opportunities in other parts of the country. The New England and Middle Atlantic regions have the highest rate of traditional pension coverage, with 29% of private industry workers eligible for a pension. Pension access is the lowest in the south, where just 23% of workers have access to pensions.

Join the Management Track

Managers, especially those who work in business and finance, have better retirement benefits than most other occupations. Some 22% of private-sector employees in a management role have a traditional pension plan.

Work Full Time

Many pension plans are closed to part-time workers. While 18% of private-sector full-time employees have a pension plan, just 7% of their part-time counterparts are eligible to participate.

Earn a Large Income

Almost a third (31%) of workers in the top 10% of the income distribution also have a traditional pension plan . Only 4% of people in the bottom quarter of the earnings distribution enjoy the same level of retirement security.

Carefully Consider Your Profession

A few specific industries are especially likely to maintain traditional pension plans. The majority of employees who work for utility companies (65%) have pension benefits. Those who work in the finance and insurance industries (28%) might also have a pension plan, especially if they work for a credit intermediation firm (39%).

Stay at the Same Job for Much of Your Career

Working at a firm that provides a traditional pension plan doesn't mean you will get payouts in retirement. You will likely need to work for a specific number of years for the same employer before you qualify. If you change employers , you might not qualify for any retirement payout at all, or only a very modest one.

"Those benefits don't work well when you have multiple employers throughout the course of your career," says Alan Glickstein, who analyzed retirement benefits at Willis Towers Watson. "Traditional plans are very valuable as you get close to your retirement years, but the benefits do not accrue evenly over the course of your career." Most pension plans are set up to provide the biggest rewards to people who spend decades with the same employer.

Pay Less Taxes on Retirement Withdrawals

Close up of a senior woman doing her bills at home

Marry Someone With a Pension

If you are or were married to someone who vested in a traditional pension plan, you may qualify for traditional pension payments, even if your spouse with the pension passed away. Traditional pension plans are required to provide qualified joint and survivor annuities to spouses. "The benefit pays you a somewhat lower monthly amount in exchange for a benefit that continues if you die for the life of your spouse," Glickstein says.

Create Your Own Pension

If you have some savings, you can create a stream of retirement payments using an immediate annuity . This insurance product provides payments that are guaranteed to last the rest of your life. However, they're also known for fees, complicated mechanics and the risk that the insurance company could go out of business.

10 Tax Breaks for People Over 50

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Tags: retirement , money , pensions , second careers , personal finance , benefits

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How to choose a workplace pension provider

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Rainy day: auto-enrolment workplace pensions have transformed retirement saving

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If you need to set up a workplace pension for your employees, make sure you know what to consider and which providers are out there

Having a workplace pension is an essential for your employees.

Not only will it build up their pot for retirement, but it will give them greater financial wellbeing in the short-term which can improve productivity.

Finding one, on the other hand, can prove challenging. Since auto-enrolment was introduced, more and more providers have been getting on the opportunity and offering workplace pensions of their own.

In this article, we’ll take you through some of the legalities and show you how to find the best workplace pension provider for you, complete with a list of workplace pension scheme providers to give you some steer.

Do small businesses have to provide a pension?

By law, yes. Under the Pensions Act 2008, all employers must put staff on a pension scheme and contribute to it. Businesses employing for the first time need to comply too.

Any employee over the age of 22 who earns over £10,000 a year, £833 a month or £192 a week must be placed on an auto-enrolment. This still applies if you only have one eligible employee. If you don’t set one up, you’ll incur fines from The Pensions Regulator and you may have to backdate payments from when your employee started working for you.

If you’re in any doubt, The Pension Regulator has an online tool to help you figure out your duties.

What is auto-enrolment?

Auto-enrolment is a pension scheme required by the government where employees are automatically put on a scheme and a certain percentage of an employee’s wage is put in their pension scheme, with an additional percentage being put in by you, the employer. At the time of writing, contributions must total at least eight per cent of qualifying earnings and at least three per cent of that needs to be paid by the employer.

There are a few types of pension scheme, so here’s a quick jargon buster.

Defined Contribution: Sometimes known as money purchase schemes, these are based on employers and employees agreeing on defined percentage contributions into a pension pot. The contributions are then put into investments by your pension provider. It’s the most commonly offered scheme.  

Defined Benefit: These are based on a member’s salary and the period of time that they’ve worked with the employer. Unlike DCs, the amount of income produced isn’t based on market performance.

Group Personal Pensions: GPPs are run by a pension provider. Employees will join said provider’s pension scheme. The employer gathers member data and then passes it on to the provider. Members build up their pot through employer and employee contributions and the funds are distributed through a combination of stocks, shares and other investments.

Master Trust: This is a type of Defined Contribution run by a board of independent trustees to provide pensions for a number of unconnected employers. Choosing a master trust means that you don’t have to decide on who will run the scheme or draw up individual rules. That makes it easier to administrate and you’ll still be able to make decisions on contributions, where the money in the scheme is invested and what benefits your employees get.

Self-Invested Personal Pension (SIPP): A SIPP is a do-it-yourself pension which lets your employees decide how their contributions are going to be invested. It’s better for more savvy staff members who already know the market and have larger quantities to invest. When researching, you’re more likely to see is a Group SIPP, which is a collection of individual SIPPS that are grouped together.

How much does it cost my business to match employee contributions?

It depends on how much your employee pays in. Matching your employee contributions does act as an incentive for them to pay in more.

Employer contributions count as an allowable business expense too – so you can deduct them from your taxable profits to reduce your corporation tax bill. There’s no need to pay National Insurance on pension contributions either.

Choosing a workplace pension provider

First of all, it’s important that you don’t rush this process and find something that’s suitable. “As they’re starting to do their incorporation, setting up the business, it should be part of their plans at that point,” David Pye, client consulting director at Broadstone told Small Business . “We often get contact from a business that has got an employee starting next week, and they need a pension scheme legally. But obviously, it’s a rush. It’s not the nice, comfortable [period] where you can make a rational decision.”

“When looking for a pension provider for your workplace scheme, it’s very important to assess exactly what is included as part of the proposition on offer,” Jonathan Sidlin, managing director of HSC Financial Advisers told Small Business.

“You should make sure that the pension provider has access to a wide fund range and can offer other investment options. Many providers have competitive schemes in place specifically for small business owners and we find that particularly useful for our clients,” he added.

So, what should you be looking out for?

Eligibility

It may not be very clear at a glance, but chat with the provider about eligibility. Some of the larger firms may have restrictions on the size of business they allow depending on employee numbers. “A number of the major providers will actually have a five employee minimum,” said Pye. “That doesn’t mean to say that five people need to be in the scheme, but there has to be five employees.”

He also said that if you have fewer than five employees, you would tend to look towards the Master Trust providers: “Master Trust providers tend to be Smart Pensions, The People’s Pension, NEST, to name three that are very common for very small businesses to start with.”

As a lot of pension plans are bespoke depending on the needs of the business, it’s often difficult to get a sense of costs upfront. There may be a tiered charging structure depending on the assets being managed. Sidlin also said that you need to get a sense of annual management charges and total expense ratio (the measure of the total cost of funds to the investor) on any funds available in the scheme.

“Most of the charges will come out from the membership, particularly with very small schemes,” said Pye. “Some providers will set up an implementation charge, usually £300- £500, something like that, to put something in place.”

There could be charges if large sums of money are being held. “Some of our clients have over £100m in their funds, and that money needs some governance structure around it, though it’s not legally the employer’s responsibility. So you’d have an annual review put in place. Those sort of things can be put in place around for £2000 a year,” said Pye.

Investment opportunities

Think about the nature of the business and the staff you want to attract, now and in the future. If it’s within finance or tech industries, for example, employees may be grabbed by more compelling investment opportunities in their pension scheme. Equally, if you’re an ethical brand then a pension provider which puts contributions into eco-friendly investments or allows employees to choose more ethical investments, that could give you an edge over your rival firms. Take notice of the returns over, say, five years as well.

The National Employment Savings Trust (NEST) is a worthy starting point if you just want to make sure you’re compliant, so ultimately could be a simpler and better option for you.

Communications

Check out what practical information is provided for you and for employees. This could be elements like written or video guides, interactive tools or a financial wellbeing hub. It’s also worth asking how the provider communicates changes and important correspondence with you and your staff.

ESG credentials

More and more workplace pension providers are focusing on their environmental social governance (ESG) as more investors express an interest. This could be achieved through actions like carbon offsets or through shareholder power.

Changing workplace pension provider

You may very well be clued-up about all of this and just looking to change your provider. In that case, give the switchover process three months. It could probably be done more quickly, but just to be on the more comfortable side.

The snag comes with moving your employees’ funds across. “In terms of picking up the funds that have already been invested, that might have been invested for two or three years or longer, the employer doesn’t have the power to do that, it has to be an employee choice,” said Pye. “Ideally, you would help the employees with that. It’s not a difficult process, but they need to be made aware.”

Who is the best workplace pension provider?

When you compare workplace pension providers, there is a lot to consider. Start with an online search to get a sense of what’s out there. It’s best not to be too reliant on it though as you could miss out on a company offering a more suitable package further down the search engine rankings. With this comes the peril of too much choice. “There is a danger of a three-man business that’s been been operating for six months getting a full market review and probably 60-70 per cent of the market wouldn’t entertain them because they’re too small.”

If you’ve got any co-directors or consultants, go over it with them and see what they think. It’s also worth seeking out a financial advisor if you can.

List of workplace pension providers

To help you out in the meantime, here are some of the main workplace pension providers and a table of key features.

Types of pension: Master Trust, Direct Contribution Contracts

Fees: Up to 0.60 per cent annual percentage charge based on fund value.

Aegon is one of the largest pension providers in the UK, supporting over 10,000 employer schemes and managing savings of over 920,000 members. It says it provides a full range of savings options ‘that can meet every employer’s requirements, whatever the size, complexity or future plans.’

  • Financial wellbeing hub for employers
  • SmartEnrol supports the enrolment and re-enrolment of eligible employees into your pension scheme so your employees don’t have to
  • Integration with HR and payroll systems

Types of pension: Master Trust

Fees: Dependent on scheme. Employees also pay a fund charge between 0.2 per cent and 0.75 per cent per year.

Aviva has a selection of online guides to help you sort out your employees pension scheme without having to talk to a customer services team. A minimum number of contributing employees may be required to sign up with Aviva.

  • No set-up fees
  • Easy to set up
  • Free online management dashboard
  • 200 investment fund options

Cushon Master Trust (formerly Salvus Master Trust)

Fees: Standard annual management charge is 0.55 per cent for companies with ten or more employees and 0.65 per cent for companies with fewer than ten employees.

Hailing itself as the world’s first net zero pension, Cushon promises a true investment in your employees’ future as well as a jargon-free experience so that they can understand what they’re getting. However, there are only 90 investment options, fewer than some of the other providers.

  • Integrates with your existing benefits platform
  • Support to encourage employees to reach savings and retirement goals
  • App-enabled ESG voting allows employees to have their say in how organisations they invest in conduct themselves
  • Help for employees who are hindered by the Lifetime Allowance, Money Purchase Annual Allowance or the Tapered Annual Allowance

Types of pension: Master Trust and Group Personal Pensions

Fees: Based on client needs

Flexibility is the name of the game with Fidelity. Funds from Fidelity and other leading fund managers across a variety of management styles, asset classes and risk profiles. Though Fidelity has no eligibility criteria, it said that its focus tends to be on larger corporate clients.

  • Flexible retirement options
  • Investment-only solutions
  • Workforce management capabilities
  • In-scheme flexible options, including regular income drawdown

Hargreaves Lansdown

Types of pension: Group SIPP

Fees: Not stated

This is definitely a pension for employees who are interested in investment opportunities. The Group SIPP is similar to the Group Personal Pension in that payments are invested in a low-cost investment fund. However, HL experts help employees to make their own investing choices by providing investment ideas and ready-made portfolios. The scheme is open to most small businesses, but it’s typically businesses with 50+ that use it.

  • Thousands of funds and investment options
  • Multiple ways to apply
  • Flexible retirement fund options for employees

Legal & General

Types of pension: Master Trust, contract and trust-based pensions

Legal & General have multiple savings options and you can opt to do a salary sacrifice arrangement if it’s more suitable for employees. There’s a big focus on employees with a financial wellbeing hub as well as flexibility at retirement with the choice of cash lump sum, a flexible income, annuity and transferring pension benefits.

  • Wide range of investments including standard, bespoke and investment-only options
  • Bespoke enrolment service
  • Retirement planning tool
  • Budgeting tool
  • Online scheme management system

National Employment Savings Trust (NEST)

Fees: Annual management charge of 0.3 per cent of total value of member’s fund and a contribution charge of 1.8 per cent on each new contribution made into a member’s pension scheme

The National Employment Savings Trust (NEST) is set up by the government and is a popular starting point for most businesses, especially microbusinesses. It helps firms meet basic compliance but doesn’t come with the investment options that some of the other providers do. Its low fees make it one of the cheapest workplace pension providers.

  • No shareholders or owners
  • One of the few schemes open to all businesses

The People’s Pension

Fees: Annual charge of £2.50 – equivalent to 21p a month, management charge of 0.5 per cent of the value of a member’s pension pot each year, rebate on the management charge, giving back between 0.1 per cent on savings over £3,000 and 0.3 per cent on savings over £50,000.

One-off set-up fee of £500 + VAT for employers – this can be reduced to £300 if you go through a business adviser. Employees will be subject to an annual 0.5 per cent management charge.

The People’s Pension, as the name suggests, aims to be straightforward and accessible for the people. It has the reduced focus on shareholders that NEST has, with many more investment options.

  • Support to make sure your small business is compliant with auto-enrolment
  • The default fund, which the vast majority of members are invested into, is MSCI AA rated, making it an ESG leader
  • Compatible with leading software providers
  • All new contributions go into net zero investments

Royal London

Types of pension: Group Personal Pensions

Royal London can tailor its pension offering to meet the needs of your business. There’s flexibility in retirement and contributions for employees. They can move to another plan that gives them the flexibility to take a regular income when they need it through income drawdown. They can also do contributions through salary exchange, where your employees agree to exchange part of their salary, bonus or redundancy package for an increased employer contribution package.

Note that it’s only sold through financial advisers so will likely be more costly upfront.

  • Training and personal support is provided
  • No charge for transferring from another provider
  • Profitshare – Royal London aim to share profits to scheme holders when the firm is doing well
  • Create your own branded employee engagement hub
  • Receive scheme governance reports to show you how engaged your employees are

Scottish Widows

Fees: Average 0.46 per cent charge per year (2020)

Scottish Widows is working to integrate ESG considerations into their pension portfolios as well as giving you ongoing support throughout the time of your pension plan.

  • Free digital pension transfer service for employees
  • Wide range of investment options
  • Tailored bulk annuity solutions, i.e. an insurance policy that is purchased by pension scheme trustees to better secure members’ benefits

Smart Pension

Fees: Monthly account charge of £15 + VAT. No charge if you pay contributions by direct debit, £30 a month if you pay by BACS. Members whose employers have signed up directly have an annual management charge of 0.30 per cent and a monthly fee of £1.25

Smart Pension prides itself on being a digital first option which makes it easier for employers to run with its automated ongoing processes. It’s also ISO27001-certified meaning that data is safe and secure.

  • 70 per cent of default investment strategy invested into sustainable investment funds
  • Payroll integration
  • Set up account within minutes
  • Rewards which help employees save at major retailers

Standard Life

Types of pension: Master Trust, Group Pension Plans, Group SIPPs

Fees: Not supplied

Big player Standard Life provides a lot of guidance on auto-enrolment for those that are new to it. You’ve also got the option to switch if you’re already with another provider. They plan to make things as easy as possible for your employees, giving them retirement planning support and assistance when their retirement comes around.

  • In-scheme drawdown scheme for employees
  • Competitive annual management fees
  • Annual pension benefit statements for employees
  • Online administration hub

True Potential

Fees: Fund cost is 0.31 per cent plus a platform fee of 0.40 per cent, totalling of 0.71 per cent

True Potential says that it’s auto-enrolment on auto pilot. It can take care of lots of different elements for you including communications with employees, managing contributions and enrolling eligible workers.

  • Employees can invest in exclusive True Potential portfolios
  • Easy to transfer from NEST
  • Offers range of risk-rated investment funds 

I still can’t decide on a workplace pension provider – where can I go for further advice?

It’s a complex and important decision to make so you should take the time to ensure it’s right. Have a word with an independent financial adviser (IFA). You can find them through unbiased.co.uk and you can edit your preferences to find one who deals with pensions specifically.

Read more about workplace pensions:

Workplace pensions and keeping staff auto enrolled

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business. More by Anna Jordan

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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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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst 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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Pensions for business owners – a guide

Bryn Glover - Startups

Our experts

Written and reviewed by:.

When running a business, you are likely to spend most of your time running the company itself; dealing with day-to-day matters or coming up with plans for the long term. Setting up pension schemes can understandably take a back seat to this, but they are a vital aspect of your company's overall HR & Payroll strategy.

This article covers all you need to know about pensions for business owners, including what kinds of schemes exist, the benefits of acting now, alternatives for retirement financing and how to plan for your retirement.

Why should I act now?

With healthcare and living standards constantly improving, people are living much longer – and this creates the very real risk that you may well outlive your retirement savings.

By acting as soon as possible, not only will you be able to save more and increase your chances of avoiding this situation, it will work out cheaper in the short-term; someone who is 40-years-old will have to save less per month than someone is 50.

To work out how much you need, you should decide how much you would want to save for a comfortable retirement. Do this by identifying your ideal annual retirement income using a pension calculator (remember to allow for inflation when working this out).

Make the most of pension arrangements

The tax regime surrounding pensions has been simplified in recent years, and you now have considerably more flexibility when it comes to funding your retirement.

In particular, you should consider the following schemes:

  • SSASS scheme
  • Pension scheme
  • Pension mortgage

Set up a Small Self Administered Scheme (SSAS)

These are a kind of trust-based pension scheme which allows you to do various things with the funds in your pension pot, including lending money and making investments, whilst receiving various tax exemptions.

You can also set up these for specific employees in your business. Some benefits of SSAS include unlimited employer contributions, the ability to hold up to 5% of shares in the parent company, and the ability to lend up to 50% of the scheme’s assets to the employer.

Use a pension scheme as part of an exit strategy

In your final year of employment, there are no limits on the amount of money you can put in your pension scheme.

If you plan to sell your company to bankroll your retirement, take full advantage of this rule by paying a large lump sum into your pension fund before exiting; not only will this provide you with a sizeable pension in its own right but it will reduce the capital gains tax on the sale of the company. Remember, though, you cannot go over your lifetime allowance without attracting a tax penalty.

Set up a pension mortgage

This is an extremely tax-efficient way of paying off a charge on a property. Under this scheme, you make interest-only payments on a mortgage and pay into the pension at the same time.

At the end of the mortgage term, you pay off the mortgage with the tax-free sum you saved in the pension pot.

Pension funding options

There are various ways of saving for retirement; you should investigate your options and decide which suits you and your employees’ needs best.

Options include:

  • Executive Pensions Plans
  • Self-Invested Personal Pensions

Pensions Salary Sacrifice

Executive pensions plans (epp).

These are contribution-based plans, provided by you as an employer and administered by a life assurance company.

Employees do not have to pay National Insurance contributions on payments made into such a fund, and you can normally transfer an existing pension plan into one. You have flexibility over the amount and frequency of payments made into an EPP.

Self-Invested Personal Pensions (SIPPs)

The key feature of this plan is flexibility. Under a SIPP you can make any kind of investment permitted by HMRC and include any kind of asset in your plan.

Normally, you will need to hire a fund manager to take care of investment decisions, which means the running costs of these schemes can be high.

This is where an employee gives up a part of their salary up-front for an employer to pay straight into a pension pot.

This means you both avoid having to make NI payments on contributions – you can easily increase the real value of payments by up to 30% but incur no additional extra cost.

Pension scheme alternatives

Pension schemes are by far the most popular way to save for retirement, but there are a couple of other options open to you.

In particular:

  • Selling property on retirement – This can provide you with a large lump sum you can use to fund your retirement. Be aware, though, that it leaves you at the mercy of fluctuating property prices.
  • Individual Savings Accounts (ISAs) – Interest and withdrawals in ISAs are tax-free, and money can be accessed at any time. Higher-rate taxpayers will probably be better off in a full-blown pension scheme, however.

Choose the right time to retire

Picking the right moment is vitally important – and is normally dictated by what kind of pension scheme you chose.

  • Final salary scheme/defined benefit – You take a tax-free lump sum and an income, which is guaranteed until you die.
  • Defined contribution – You take a tax-free sum of up to a quarter of your fund and use the rest to either purchase a life annuity or income drawdown.

You don’t actually need to retire to start claiming your pension – an option to think about might be scaling back the work you do or going part-time whilst beginning to draw from your pension pot. You can also take what is known as phased retirement; by splitting your fund into discrete segments, you can delay the purchase of an annuity up to the age of 75 and invest your remaining assets elsewhere.

In the lead-up to retirement, it is always a good idea to seek professional advice. Make sure who you consult is specifically experienced in the ins and outs of pensions for business owners, as your needs will be different to that of a long-serving employee or senior manager.

Business owners pension resources

Although this article should have provided an overview of your options, it is essential to seek professional advice before making any major pension decisions. Before contacting an adviser, you should use some free resources available on the internet to give you a good grounding in the basics of pensions.

Some links to get you started:

Compare auto enrolment pension options

The information on this page should help business owners to better understand their options – to find out more about auto enrolment though, or to get quotes tailored to your exact needs, simply complete the form at the top of this page.

Comparing auto enrolment quotes in this way is free, quick and easy, and it could save you both time and money.

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NPS scheme: Reliance to HDFC Bank — here are the top five stocks held by National Pension System equity funds

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NPS scheme: In the Tier-1 account, NPS-Scheme E allocates investments to equities with long-term growth potential. As we know Tier -I is a compulsory retirement account

NPS subscriber needs to choose between active choice and auto choice for their investment preference. (Pixabay)

NPS scheme: National Pension System subscriber is required to choose the Pension Fund Manager (PFM) as well as scheme preference while registering in the Central Recordkeeping Agency (CRA) system under NPS . Within the NPS framework, there are multiple PFMs available, along with investment options (Auto or Active), and four asset classes: Equity, Corporate Debt, Government Bonds, and Alternative Investment Funds. The subscriber initially chooses the PFM and subsequently has the option to select one of the investment options after the PFM selection.

In the Tier-1 account, NPS-Scheme E allocates investments to equities with long-term growth potential. As we know Tier -I is a compulsory retirement account.

Pension Fund Manager (PFM) under NPS

Sbi pension funds private limited.

As of January 31, 2024, the fund oversees assets totalling ₹ 15,768.59 crore. Its top five holdings consist of Reliance Industries, HDFC Bank Ltd., ICICI Equity, Infosys, and Larsen And Toubro. These holdings collectively account for 30.98% of the fund's portfolio.

LIC Pension Fund Limited

The fund manages assets worth ₹ 4,827.84 crore as of January 31, 2024. Its top five holdings are- HDFC Bank Limited, RIL, ICICI Bank, Infosys, and L&T. The fund holds 33.50% of its portfolio in the top five stocks.

UTI Retirement Solutions Limited

As of January 31, 2024, the fund oversees assets totalling ₹ 2,028.99 crore. Its top five holdings consist of Reliance Industries, ICICI Bank, HDFC Bank, Infosys, and Larsen & Toubro. These holdings collectively account for 31.13% of the fund's portfolio.

ICICI Prudential Pension Funds Management Company Limited

The fund manages assets worth ₹ 10,776.34 crore as of January 31, 2024. Its top five holdings are- HDFC Bank, ICICI Bank, Reliance Industries, Infosys, Larsen & Toubro Limited. The fund holds 28.07% of its portfolio in the top five stocks.

Kotak Mahindra Pension Fund Limited

The fund manages assets worth ₹ 1,896.67 crore as of January 31, 2024. Its top five holdings are- HDFC Bank, RIL, Infosys Ltd, ICICI Bank Ltd, and Bharti Airtel Ltd. The fund holds 28.97% of its portfolio in the top five stocks.

HDFC Pension Management Company Limited

As of January 31, 2024, the fund oversees assets valued at ₹ 32,644.43 crore. Its top five holdings are HDFC Bank, ICICI Bank, Reliance Industries, Infosys, and Larsen & Toubro. These holdings make up 30.21% of the fund's portfolio.

Birla Sunlife Pension Management Limited

The fund manages assets worth ₹ 540.28 crore as of January 31, 2024. Its top five holdings are- Reliance Industries, ICICI Bank, HDFC Bank, Infosys Limited, and Tata Consultancy Services Limited. The fund holds 30.39% of its portfolio in the top five stocks.

Tata Pension Management Limited

The fund manages assets worth Rs192.63 crore as of January 31, 2024. Its top five holdings are- HDFC Bank, RIL, ICICI, Infosys, Larsen And Toubro. The fund holds 29.14% of its portfolio in the top five stocks.

MAX LIFE Pension Management Limited

As of January 31, 2024, the fund oversees assets valued at ₹ 147.68 crore. Its primary holdings consist of Reliance Industries Limited, HDFC Bank Limited, ICICI Bank Limited, Infosys Limited, and Larsen & Toubro Limited. These holdings collectively represent 32.78% of the fund's portfolio.

Axis Pension Management Limited

The fund manages assets worth ₹ 602.41 crore as of January 31, 2024. Its top five holdings are- RIL, HDFC Bank, ICICI Bank, Infosys, Larsen & Toubro. The fund holds 28.90% of its portfolio in the top five stocks.

DSP Pension Management Limited

The fund manages assets worth ₹ 13.42 crore as of January 31, 2024. Its top five holdings are- HDFC Bank Ltd, ITC Ltd, Bajaj Holdings & Investment Ltd, Infosys Ltd, and ICICI Bank Ltd. The fund holds 37.35% of its portfolio in the top five stocks.

(Source: npstrust.org.in as on Jan 31, 2024)

NPS subscriber needs to choose between active choice and auto choice for their investment preference.

Active Choice

In active choice, the subscriber has the freedom to decide how their contributions are invested, based on personal preference. They must specify the Pension Fund Manager (PFM), Asset Class, and the percentage allocation for each scheme offered by the PFM.

Auto Choice

In this option, investments are directed towards a life-cycle fund. This fund automatically allocates funds across three asset classes based on a predetermined portfolio, which adjusts according to the subscriber's age. Within the 'Auto Choice' option, there are three distinct options available—Aggressive, Moderate, and Conservative.

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IMAGES

  1. Small Business Pension Plans: What is the Right Fit for Your Business

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  2. Company Pension Overview

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  3. 5 things to consider when choosing a pension scheme for your business

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  4. Pension Options for Small Business Owners

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  5. How to set up a workplace pension for your employees

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  6. How to plan your pension: a guide for small business owners

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  2. How To Set Up A Pension Plan For A Small Business

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  6. 6 Best auto-enrolment pension providers

    NEST Now: Pensions Smart Pension The People's Pension You can click on the links above to be taken straight to that section to learn about that particular provider. Or, read the whole article for a complete guide to the best workplace pension providers.

  7. Small business pensions

    A pension scheme is a long-term savings plan, with a set amount deducted from employees' salaries on each pay day. Providing a pension scheme is a key requirement for many small businesses, and is often managed by the HR team. Pensions are often taxed at a preferential rate, compared to other types of savings.

  8. Workplace pensions for small businesses

    1. Does my business need to have a workplace pension scheme? 2. What is automatic enrolment? 3. Workplace pension schemes: employer costs 4. What if I don't have a workplace pension scheme? 5. Checklist: Choosing a workplace pension scheme 6. Pensions for the self-employed 7. How do self-employed pensions work? Login to add to your reading list

  9. How to plan your pension: A guide for small business owners

    Set up a Small Self Administered Scheme (SSAS): These are a kind of trust-based pension scheme which allows you to do various things with the funds in your pension pot, including lending money and making investments, whilst receiving various tax exemptions. You can also set up these for specific staff members in your business.

  10. Workplace pensions for small businesses. All you need to know

    Auto enrolment is a government workplace pension scheme to help more people save for their retirement - into a pension. It's now compulsory for employers to enrol all eligible employees automatically in a workplace pension scheme. Employers are also obliged to contribute to the scheme. It's good all round.

  11. Staff pension schemes for small businesses

    Every small business needs to offer qualifying employees a pension. But what are the rules as to who qualifies and how do you set one up? How do we go about setting up a staff pension scheme?

  12. What is a Company Pension? A Guide for Small Business Owners

    Understanding and setting up a company pension scheme can be complex, especially for small business owners. This comprehensive guide will demystify UK pension rules, explore employer obligations, and provide a roadmap for setting up a pension plan for your limited company.

  13. What is a SSAS pension?

    SSAS is a contribution-based pension scheme that small businesses can manage themselves. These self-administered schemes can be a good option if you have a limited company or partnership as you can have greater flexibility over your investments. You can even choose to invest in your own company. You might also consider using one if you're a ...

  14. Workplace pension schemes

    Your employee must pay a minimum of 5%. When you select a pension provider you will be able to choose either a "qualified pension scheme" or set-up one specifically for your employees needs. The pension provider will be able to help you with this.

  15. Our Best Workplace Pension Schemes

    Workplace pension schemes for your small business Here's what you need to know to choose and set up the best company pension scheme for your needs. Great 1,054 reviews on On this page What is a workplace pension? Is it a legal requirement? Government-backed schemes Things to consider How to set up FAQs Author Jessica Bown Editor Kyle Eaton

  16. Complete Guide To Workplace Pensions For Small Businesses

    Complete Guide To Workplace Pensions For Small Businesses. We help businesses of all shapes & sizes reward their staff 🚀. Get My Quotes. 3690 independent client reviews rating us at 4.92 / 5. Tom Conner Director. 0127 364 6484. 04/01/2024. 7 mins. Running your own small business is an exciting endeavour.

  17. A Guide to Getting a Pension

    Large employers are much more likely to provide a traditional pension plan than small businesses. Among firms with 500 or more workers, 56% have a traditional pension plan. Only 26% of employers ...

  18. How to choose a workplace pension provider

    Do small businesses have to provide a pension? By law, yes. Under the Pensions Act 2008, all employers must put staff on a pension scheme and contribute to it. Businesses employing for the first time need to comply too. Any employee over the age of 22 who earns over £10,000 a year, £833 a month or £192 a week must be placed on an auto-enrolment.

  19. Workplace Pensions

    We currently provide workplace pension schemes for some of the UK's best-known companies, offering a range of investments and support for over 4 million pension scheme members in more than 26,000 schemes. Stability & credibility

  20. Finding the right small business pension provider

    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.

  21. Workplace pension schemes

    Workplace pension schemes place quite some responsibility on employers. The amount of things you need to know is quite a challenge. As a small business owner, you must first ensure your staff understand their entitlements. They need to make an informed decision about whether they want to enrol or not - and it's your responsibility to make ...

  22. Pensions for business owners: Compare options

    Pensions Advisory Service - Not-for-profit organisation with advice on a range of schemes. Its small business helpline can be contacted on 0845 601 2923. Pensions Regulator - Advice for employers, trustees and pensions professionals. Call 0870 600 0707 for pensions regulations enquiries.

  23. NPS scheme: Reliance to HDFC Bank

    NPS scheme: In the Tier-1 account, NPS-Scheme E allocates investments to equities with long-term growth potential. As we know Tier -I is a compulsory retirement account