Workplace pension costs

That’s one of the first things employers ask us - and it’s an important question. After all, you need to make sure you’re doing right by your employees and getting value for money.

The answer will depend on a lot of things, from the provider you choose to the number of people in your workplace pension scheme. It may also be affected by any changes in legislation or economic factors, so it’s not a simple question to answer.

Workplace pension costs are about more than just pension contributions. You also need to think about the costs of setting up and running your scheme. That includes your pension provider’s charges, payroll costs, and the amount it costs you to assess eligibility and tell your employees about their workplace pension scheme. You also need to consider whether to pay for financial advice. 

Auto-enrolment regulations require you to contribute at least 3% of your eligible employees’ qualifying earnings to their workplace pension. Qualifying earnings typically include salary and bonuses. 

The minimum total contribution into each employee’s pension must be 8%. You can choose to contribute all of that – or your employees will have to make up the difference. 

The government offers tax relief on pension contributions. This means it adds the money your employees would have paid in income tax into their pension instead, boosting their pension pot.

You and your employees can also save on tax and National Insurance contributions by using salary sacrifice to pay pension contributions. This works by employees agreeing to swap part of their salary in exchange for the same amount paid into their pension. Because this effectively reduces their take-home pay, it also reduces the tax and National Insurance payable. 

The cost of your workplace pension scheme will vary from provider to provider. It’s important to shop around to get the best deal for you and your employees. But make sure you look at the level of service you’ll get as well as the cost. 

When you’re weighing up charges, it’s worth thinking about how much time you can afford to spend on your workplace pension duties. Do you want to spend time managing your pension scheme instead of your normal business affairs? There are a number of duties you are legally obliged to carry out in relation to your workplace pension scheme, which take time and effort to do.

Choosing a comprehensive package from a provider could help you spend less time on running your workplace pension scheme and more time on what you do best. 

If you’re a new employer, your auto-enrolment duties (all part of your workplace pension scheme) and PAYE duties will start at the same time. So, it might make sense to choose the same payroll solution for both. 

Whether you use a payroll bureau or integrated software from your pension provider, the cost is likely to increase alongside the capabilities. That means the more you pay, the more you’ll get. 

Part of making sure your workplace pension complies with the law involves sending a range of regulatory communications to your employees. This includes making sure your employees understand their pension scheme and have the information and tools to help them make informed decisions. 

When your pension duties start, you’ll need to make sure you tell your employees at the right time. This is a crucial step in managing your workplace pension. 

An independent financial adviser could offer their support and expertise on auto-enrolling your employees into your workplace pension scheme. 

An adviser may also be able to help you: 

• learn how to optimise your pension costs without compromising benefits
• assess the impact of rising employment costs and how to mitigate them
• identify and manage risks associated with pension schemes, including market volatility and pension scams
• anticipate changes in pension regulations and their potential impact
• understand innovations in pension schemes and benefits that could affect your costs. 

The cost of advice will depend on the level of support you need. 

If you don’t already have a financial adviser, you can find one through MoneyHelper.

Missing your duties start date could increase the overall cost as you might have to pay more to set up the service. You might also have to pay penalties or fines from The Pensions Regulator.