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Research conducted by Workplace Pensions Direct (WPD) and YouGov, has found that only half of British businesses (50%) are leveraging the salary sacrifice benefits available for workplace pensions.

This means that more than 15 million people could be missing out on the ability to contribute (on average) a further £204 into their pension every year – which for a 30-year-old planning to stop working at the age of 68, could mean a £30,500 difference to their retirement savings.

The findings should act as a stark jumpstart for British firms, believes WPD’s CEO Keith Humphrey, particularly given the pensions timebomb that the country’s ageing population is facing.

The research found that of the 44% of British businesses that don’t currently leverage the benefits of salary exchange for pensions – and the 7% of respondents who didn’t know whether they do or not, despite them holding financial decision-making responsibilities – the primary reason is a lack of perceived benefit to employees (23%). 17% also admit to having never heard of it, and 14% perceive it as too much hassle.

However, Workplace Pensions Direct has recently helped a 52-strong construction firm save £9,200 per year via a salary exchange scheme, and a business services company with 525 employees has recorded annual savings of £58,000. The employers then have the options to use such savings to enhance colleagues’ pension contributions, invest them elsewhere, or simply use them to strengthen their net profits.

“While pensions are often overlooked as a ‘boring’ subject – nothing more than a ‘dirty word’ in some organisations – the ratio of people in retirement will have shifted from 6:1 in 1990, to 2:1 by 2030,” said Keith. “Add to this the fact that forecasted returns on pensions have fallen – meaning workers must now contribute 50% more to achieve the same predicted pay out, compared to a decade ago – and it’s no wonder that the World Economic Forum has highlighted this as the financial equivalent of climate change. The implications for health, social care and quality of life during retirement, are indescribable.

“But businesses can better support employees with their deferred income planning, as I like to call it,” continued Keith. “And it wouldn’t cost them an extra penny, if they leveraged the salary exchange methodology sanctioned by HMRC. With savvy Generation Zs particularly keen to maximise their savings potential, and the employment landscape notoriously competitive – particularly in sectors such as tech – now is the time to press reset on organisations’ pensions mindset. It’s an incredibly overlooked employment ‘perk’ that could give organisations the edge over other businesses vying for the same talent.”

“The encouraging thing to note from this research is that 50% of British businesses are being extremely savvy when it comes to salary exchange for pensions, and of those who are, 71% are re-investing the money into enhanced retirement savings for employees,” continued Drew Donaldson, WPD’s technical and operations director.

When drilling down into the data*, there was a distinct trend among the age of the financial decision maker within the business, with 60% of under 35s having rolled out a scheme, compared to only 41% of over 55s. Interestingly, it appeared that the age of the company could also be a deciding factor, with firms over 35 years old the most likely to have introduced such an initiative (57%).

In terms of market sector, salary exchange schemes were most prevalent within the medical sector (75% adoption rate), followed by the creative and media industry (73%) and tech/telecoms (68%).

A full report on the findings can be accessed at www.workplacepensionsdirect.co.uk/salary-sacrifice-pensions-yougov-findings/.

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 258 adults. Fieldwork was undertaken between 20th – 22nd April 2021. The survey was carried out online. The figures have been weighted and are representative of British business size.

*Where more granular trends have been reported – relating to market sector, age of the company or age of the decision maker – the sample size is smaller (<50 respondents for this cross break). Such trends are therefore only observed and may not be statistically significant.

The absence of due care when making critical pension choices is guaranteed to return to employers in the long run.

95% of the population can’t justify expensive financial advice. We’re working to bridge the gap.

What happens when codes of conduct fail?

Think you’ve taken advantage of all the auto-enrolment opportunities you can?

2017 will be a real test of your capacity to deal with auto-enrolment as a business adviser, why not outsource?

There are around one million businesses in the UK that must by law put in place a pension scheme for their workers during 2017. There are those who haven’t yet done so from last year, plus another 750,000 this year. Ten million workers are potentially impacted, that’s one in six of the UK population.

When all this is done, over 70% of the UK working population will find themselves in a workplace pension scheme. This is up from 50% five years ago.

Why is this all necessary?

Today, there are four workers for every pensioner. By 2050, there will be two workers for every pensioner. The State pension is funded by taxpayers, to be affordable for the nation the State pension age is being raised so people must work for longer. The future State pension has been set at today’s prices at just £155.65 per week. If people are going to have a comfortable level of income in retirement, more needs to be done, something must be done to increase levels of private pension provision.

A Gift to Your Future Self

There remains a strong link between poverty and well-being. To be happy, we need a comfortable standard of living. If you find yourself in the future struggling financially then your well-being is likely to suffer, and you risk being a financial burden on future generations.

Your options will be:

·        Carry on working

·        Sell your property or business

·        Do something now

Your best option just might just be for your future-self to advise your present-day-self to pay attention today, and act.

Is do nothing now an option?

The Government has made sure that you will be given access to a workplace pension scheme under these latest changes. If you are aged between 22 and State Pension Age, and earning over £833 per month, you will be automatically enrolled to it. If you are between 16 and 75 you will be allowed to join it. All workers earning over £486 per month will be offered pension contributions from your employer. Funding rates are 2% of pay today, rising to 8% in 2019. So, by doing nothing, it’s true, 2 in 3 workers will end up with a workplace pension.

What’s happening in practice?

So far things are pretty much going to plan for the Government. 370,000 employers have met their duties, and there are 7 million new members in workplace pension schemes. Only 1 in 20 employers failed to comply with the law by the deadline, and most of these now have a scheme in place for their workers. However, when checked six months prior to the date duties apply only half businesses had started looking at auto-enrolment. Many employers have left preparation late, and are rushing their duties.

In 2017, we can expect nearly one million businesses employing 10 million workers to have to comply with the new auto enrolment regulations.

One duty that is often overlooked is the requirement to compare schemes and select one that’s appropriate for the workforce. Evidence suggests that 3 in 4 employers choose the first scheme they come across (often the Government supported one – Nest), or one that their business advisers use for all their clients. In other words, a comparison is not taking place.

Does scheme selection matter?

If you earn less than £11,000 per year an inappropriate scheme selection could result in you missing out on valuable tax relief, your pension pot could be 20% smaller.

If your employer chooses a scheme with high pension charges, or poor projected investment returns, your pot could be smaller by as much again.

You could find yourself in a scheme where you are locked in until retirement, when you find yourself with limited retirement options.

You could find yourself in a pension scheme that doesn’t communicate your pension benefits very well.

The combined effect of all of this could be your future self, having a much smaller pension pot at retirement than you expected, simply because the employer did not do their job properly at the beginning.

What can I do to change things?

You can show an interest in auto-enrolment. Ask your employer questions. Make sure your employer is aware of the need to take care with their duties, and in particular, to choose a scheme that is right for the workers.

Remember, you have rights that are safeguarded. Your employer is not allowed to say anything that would discourage you from joining your workplace pension scheme.

If you or your employer need any help regarding auto-enrolment duties, please don’t hesitate to ask an expert.

Contact www.workplacepensionsdirect.co.uk

The new year carries with it a wave of small businesses preparing to complete their legal duties.