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Workplace pensions, are your employees in or out?

Nobody used to talk about pensions much… how things have changed!  Anyone who runs a business nowadays will have to get to grips with pensions very soon, and most will already have had a reminder from The Pensions Regulator telling them that they’ve got to set up one of these new-fangled workplace pension schemes if you employ one or more eligible employee.  ‘Don’t ignore the workplace pension!’ says Workie, the government’s new and friendly blue and purple pensions monitor.

 

‘But none of my staff will want to join a pension scheme…’ I hear you say!  This might be wishful thinking, because statistics show that around 90% of staff are staying in their workplace pension scheme rather than opting out. 

 

What an employer might not realise is that they still have to set up a pension scheme, whether or not their eligible employees decide to opt out of it – there’s no getting around it.  People basically have to be ‘in’ before they can opt out of the scheme.  Employees don’t have to do anything to be in (that’s the automatic bit), but they do have to fill in a form to opt out.  So is it apathy that’s leading to high levels of take up, or are employees really happy to be in?

 

Being an optimistic pensions geek, I’d like to think it’s the latter.  Employees are getting a very good deal out of their workplace pensions.  Fund charges are low, and not only do they get free money from their employer through compulsory employer contributions, they also get full tax relief on their own pension contributions.  Then there’s the tax relief they receive on investment returns, and 25% tax free cash at retirement.    And you can do so much more with your pension these days, including cashing it all in at once, or taking it bit by bit.

 

It’s not just good news for the employee – the employer gets tax relief too as their contributions can be deducted as an expense, reducing the amount of taxable profit.  And a good pension scheme will help to attract and retain the right sort of people.

 

The difficult bit is getting these positive messages across to employees so that opt out rates stay low.  The loss of the state second pension (S2P) next year will hit youngsters hard, and if they want to retire on more than just the basic state pension then they’d better start saving now!


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