By Michelle Rowe, Senior Accountant at Hive Business
I have a dream. It’s a simple dream. My husband and I are on a narrow boat floating up a calm river on a warm spring day simply taking in the sights and sounds of the canal whilst enjoying a nice cup of tea. I know this is a dream because if it was a reality then I wouldn’t be relaxed at all as I’d be permanently on alert trying to keep my two children from falling into the river, or worse, stopping them from pushing each other into the river! So, on reflection, I think this will have to be a retirement dream. A dream for when the kids have grown, and I have time to stop and watch the world go by.
Saving towards retirement is always a hot topic here at Hive. We are encouraged to plan for our own futures and are offered a very favourable pension scheme to enable us to save towards our retirement.
With the automatic enrolment legislation that was introduced a few years ago, it became mandatory for all employers to enrol qualifying employees in a workplace pension scheme. It became standard practice and, from 1st April, the minimum contribution is set to rise again to 8% of pensionable earnings – a 5% employee contribution and a 3% employer contribution. To give you some idea of the amounts involved for a staff salary of £20,000, the total annual contribution would be:
- 2018/19 – 5% of earnings over the threshold of £6,032 = £698
- 2019/20 – 8% of earnings over the threshold of £6,136 = £1,109
Using the Money Advice Service pension calculator, for a 25-year-old employee with those contribution levels and a retirement age of 68, their pension pot income at retirement would be worth £3.5k per year. The State Pension (assuming it’s still worth something by 2062) would bring estimated annual income at retirement up to £12k. I’m not sure there would be many exciting retirement adventures on £1k a month! It’s definitely a good thing that the Government forced individuals to save towards their retirement but is it enough?
As an employer, your workplace pension scheme could be used to attract new employees. Not only could you offer a competitive salary, but you could offer a pension scheme above the required minimum. For example, for an employee earning £20,000 a year, matching a 5% contribution would cost your business an extra £280 a year – not a huge amount but showing that you’re willing to invest more than the minimum could be the deciding factor in an employee choosing you over another employer.
Employers do have another option to differentiate themselves from the rest – offering a salary sacrifice pension scheme. This is where the employee agrees to sacrifice a proportion of their salary in exchange for an investment in a workplace pension scheme. There is a bit more paperwork involved but it does save both the employer and the employee some money since it’s taken before the calculation of national insurance contributions – this would mean that for the same level of contribution, the employee would receive a bit more in their pocket each month and it would cost you a little bit less. A number of auto-enrolment pension providers are now offering such schemes, but I should warn you that there is likely to be a cost involved in converting your existing scheme.
A good pension scheme can be a real selling point to attract new employees – more and more people are concerned about having enough money in their retirement so offering a good benefits package is key to attracting and retaining excellent employees.
If you’re interested in improving your workplace pension scheme, we can put you in touch with an independent financial adviser who can talk you through the options. Alternatively, if you have any general questions regarding salaries or pensions, please call us on 01872 300232 or email [email protected].