New report reveals that small businesses are needlessly spending on pension set-up costs
In excess of £300m will be spent by small firms across the UK over the next three years on setting up workplace pension schemes.
But according to research carried out by payroll and pensions platform Paycircle, in conjunction with The Pensions Regulator, many of those businesses are wasting their money when they could be using set-up services for free.
Every British employer has to automatically enrol workers into a scheme if the worker is aged between 22 and the state pension age and earns more than £10,000 a year.
The research reveals that around 40 per cent of employers with one to four members of staff paid for help to set up a workplace pension. In some cases, they spent up to £1,000 for advice on how to start their own scheme.
In fact, smaller UK businesses don’t have to pay to start a workplace pension. A number of providers offer free advice and others will also automate the set-up and contributions process.
Catherine Pinkey is co-founder of Paycircle and says: “It’s more important than ever to broadcast the message that there are ways for companies to set up a fully compliant workplace pension scheme themselves at no cost.”
One leading example is Nest, the workplace pension backed by the government. Nest is free for employers, has been built specifically for auto enrolment, and connects a company’s payroll to a pension scheme via an Application Programming Interface (API).
Pinkey adds: “We need to debunk the myth that only an expert can take care of your auto-enrolment because it’s highly technical: that’s what certain advisers may want you to think but the reality is quite the opposite.
“It doesn’t have to cost a penny and, for smaller companies, can be done in little over an hour.”
Scottish Widows retirement expert Lynn Graves agrees that paying for advice may not be right for every small employer, but explains that advisers can have an important role to play and that employers need to understand the different types of charges:
“There may be a charge for advice, and while this isn’t appropriate for every small employer, depending on the complexity of their needs and the profile of their workforce, it’s certainly worth considering.
“There are also sometimes further fees levied by pension scheme providers, either for setting up the scheme or on an ongoing basis. It isn’t necessary for employers to pay these, and there are plenty of providers, including ourselves and NEST, who don’t use them.”