An employer’s guide to workplace pensions: how to review and optimise your scheme

At a glance

  • As an employer, optimising your pension scheme could help you attract and retain staff.
  • Pensions can offer a more tax-efficient way to enhance remuneration, compared with salary increases.
  • Even if you already have a pension scheme in place, it’s worth reviewing this to ensure it’s still appropriate for your workforce. Contact us for advice.

Too many small and medium-sized enterprises (SMEs) fail to maximise the benefits of pension provision for recruitment and retention, says new research.

UK auto-enrolment rules require companies to provide a workplace pension for eligible staff and pay into it. This shouldn’t be a box-ticking exercise. With 69% of SMEs saying recruiting and developing skilled staff is their biggest barrier to growth1, companies could look to optimise their pension schemes – by reviewing features and communicating benefits – to help attract and retain talent.

But a 2023 study shows SMEs often fail to review their pension scheme2 or ensure it’s the best fit for staff. And 90% of workers say their employer hasn’t encouraged them to enhance their pension contributions. This leaves tax-efficient savings unused and deprives employees of the full benefit of their schemes.

This article explores employers’ duties around workplace pension schemes; how reviewing and optimising yours can benefit your business; and how to avoid some potentially scary fines for compliance failings.

Why promote your pension?

Claire Trott, Divisional Director, Retirement and Holistic Planning at St. James’s Place, says: “Pensions should be key tools for recruitment and retention as they add considerable value to employees’ remuneration and experience of work. As most employers are already required to set up a scheme, it makes sense to use yours to enhance overall compensation as much as possible.”

Claire says the features of a scheme that meets minimum requirements, while better than nothing, aren’t attractive compared to what you could offer. There are many simple, cost-effective ways to enhance your scheme and boost its impact.

For example, adding salary- and bonus-sacrifice options reduces your employer and employee National Insurance (NI) contributions. This makes them a more tax-efficient way to enhance remuneration compared to salary increases. Another tax-efficient option is to match any extra pension contributions employees make – or even offer an uplift, which means you match the contribution plus, say, 10%.

Claire says if money is tight in the business, you could keep the tax savings from these enhancements, or you could pass some or all of them to employees to make the scheme even more valuable.

She adds that educating staff about the tax and savings advantages for them is an important way to add value to their employee experience. For example, you could highlight that the more they boost their contributions, the more tax they save in the long term.

“In most cases if only the minimum 8% is contributed the employee will not have enough to retire comfortably,” says Claire. “It’s important you educate them about that as early as possible and remind them regularly to encourage extra contributions.”

(The 8% is made up of 5% from the employee (which includes tax relief) and 3% from the employer).

Why review your pension scheme?

Many SMEs set up a basic auto-enrolment pension scheme when they’re first required to. As time passes, you should also review whether the scheme’s features are still appropriate for your workforce. For example, if you have recruited lots of low earners, you need to make sure they get tax relief on contributions by using a “relief at source” rather than “net pay” arrangement.

Alternatively, you may have selected a scheme that makes only base salary pensionable. But if you’ve taken on staff who receive more commission or bonuses, you may need to adjust the scheme to accommodate these remuneration types.

External factors could affect your scheme too. For example, as information transparency increases, comparing details about companies’ benefit packages is easier. So, it’s worth looking into what other SMEs in your sector provide to ensure your features are competitive. It could make the difference between attracting the best talent or losing out to a competitor.

Also, during periods of higher inflation, people may feel their salaries aren’t keeping up, so they’re likely to be more interested in how their benefit packages can make up the difference. Responding to that demand could make your remuneration more competitive and show that you listen to employees’ needs.

Other pension options

Another consideration in your pension review is whether you or your employees may need other types of pension provision. For example, in addition to your auto-enrolment scheme, you and your fellow directors may also want executive pensions, personal pensions or self-invested personal pensions (SIPPs). Such plans tend to offer more control and flexibility compared to a basic workplace scheme. For example, basic pensions may have only a short list of funds you can invest in. In contrast, a SIPP may have many more options, plus flexibility to invest in other assets such as commercial property for your business.

Even if your company is exempt from setting up an auto-enrolment scheme, you and your other directors should still contribute to a pension, so you’ll need alternative arrangements.

“Pensions are one of the most tax-efficient ways to extract profits from your business as there’s no Corporation Tax on them and no Income Tax until you access them,” says Claire. “So, make sure you’re not missing out on that.”

Compliance to-do list and common pitfalls

From the moment you employ your first staff member, you have legal duties around workplace pensions. Your responsibilities include:

  • Registering with HMRC and The Pensions Regulator (TPR)
  • Choosing a suitable pension scheme (unless you’re exempt), putting eligible staff into it and making contributions. They can opt out later if they wish
  • Writing to staff to explain how auto-enrolment applies to them
  • Assessing staff on an ongoing basis to check they meet the age and earnings criteria for auto-enrolment and letting them know in writing
  • Completing a declaration of compliance, even if you don’t need to put staff into a pension scheme
  • Re-enrolling staff who have opted out of the pension scheme every three years and submitting a new compliance declaration.

Claire says: “The fines can be horrific if you don’t auto-enrol people at the right time and meet all your other requirements. You need to fulfil your duties, even if you don’t meet the requirements for providing a scheme.”

Here are some areas in which SMEs often make compliance errors:

  • If you don’t meet the requirements for providing a scheme, you need to declare this is still the case every three years.
  • If you do meet the requirements, you must declare this to TPR every three years.
  • When you take pension contributions from staff, you must pay these into the scheme within 21 days.
  • You must not encourage anyone to opt out of your scheme.
  • If anyone does opt out, you must enrol them again after three years (they can opt out again).
  • You must gather timely, accurate information about your employees to ensure they’re auto-enrolled when they become eligible. A common mistake is not having adequate systems to ensure this.

Reviewing workplace pensions requires the help of a professional, as there can be some complex calculations and considerations involved. But it should be well worth it to ensure you and your staff are getting the best retirement provision possible.

To review your scheme and other pension arrangements, contact us today.

The value of a pension will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The flexibility of a SIPP allows you to spread the risk, especially if some investments perform badly. However, these do tend to have higher costs than a standard pension and active management is essential to maximise the benefits of the wider investment choice on offer. For these reasons, they will not be suitable for everybody and generally only those who are fairly experienced at actively managing their investment should consider this type of investment.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Auto-Enrolment products are not regulated by the Financial Conduct Authority.


1Social Market Foundation, ‘Full scale’, September 2023 (Findings based on analysis of the Department for Business & Trade ‘Longitudinal small business survey’, August 2023, survey sample size 7,718)

2Howden, ‘SME workplace pensions and benefits research report’, September 2023 (Based on a survey sample size of 500 SME employers and 500 SME employees)

SJP Approved 29/04/2024