Workplace Pension Scheme vs. Cost To Your Business
The cost of auto enrolment to the employer is a minimum of 1% contribution per employee on ‘qualifying earnings’ of all eligible employees that do not opt out of the scheme, rising to 3% by October 2018.
Though a small cost on the surface, for large employers and businesses with tight profit margins, this is a significant month on month outlay. To that end, assessing possible pension providers against the National Employment Savings Trust (NEST) is arguably prudent.
NEST was set up to provide low cost option for employers. NEST is a non departmental public body accountable to Parliament via the Department of Work and Pensions (DWP). The charges for NEST are:
- Annual Management Charge (AMC) of 0.3% on the total value of the pension pot
- Each new contribution incurs a 1.8% charge.
For example, should the value of your pension pot be £10,000, and new contributions came to £2,000. You would pay £30 AMC and £36 in contribution charges. At total of £66. This means that the AMC in percentage terms is around 0.5%
According to the NEST publication Low charges for future members of NEST, it compares favourably to other low cost AMC schemes. To your employees, the return is also favourable at least according to this document.
Assessing The Competition
From your point of view, where you might be able to save money is on the fees and charges. NEST is competitive by design. It might be that the competition does a better deal for employees, and this is your priority.
If your priority is on saving money, effectively you are looking at the AMC cost plus additional fees. There could be long term savings and to discover this you will have to crunch a lot of numbers. It is definitely worth seeking financial advice on the subject. To that end it is also worth checking different pension providers every twelve months or so. Schemes change as new pension products come onto the market. NEST may change too, possibly with a change of government.
If your priority is on employees, then the returns may be favourable elsewhere. The cost to you however, will certainly rise. Again the best advice is to seek financial advice. This is a long term endeavour and the costs cannot be overlooked or underestimated.
Assessing the Costs to your Business
Auto enrolment is a serious matter and one which is going to increase your costs. Ensuring accurate costing is important, and using NEST as a benchmark is a good place to assess your costs regardless of your priority.
To gain a better understanding of auto enrolment, NEST, and related costs to your business, click here.