Of all the employee benefits, we often hear HR teams citing pensions as the most confusing – particularly for those with global teams. That’s because the rules are often different from country to country and there’s no ‘set’ amount employers must offer. We’ve pulled together a holistic guide to pensions to break down the terms and make them more understandable.
What is a pension?
A pension is a tax-efficient way to save money for your retirement. There are two key types: a workplace and a personal pension. Workplace pensions are what we’ll be focusing on in this guide.
Here’s how a workplace pension works:
- You and/or your employer pay into your pension.
- You'll receive tax relief on the pension contributions you make.
- Ideally, your pension pot grows as you pay into it and the value of your investments rises. But bear in mind that the value of your investments can fall too, especially during challenging financial times.
- You can access your pension from the age of 55 (rising to 57 from April 2028). you can access your pension as an income, a lump-sum or a mix of the two.
Why it’s important to offer a pension
In the UK, employers must offer a pension under the Pensions Act 2008. So it’s a non-negotiable that you automatically enrol certain staff into a workplace pension scheme and make regular contributions.
In countries where it’s not a legal requirement, many employers still offer a workplace pension as part of their benefits package. Learn more about different countries’ approach to offering workplace pensions here.
Here in the UK, plenty of employers go above and beyond in terms of their pension offering. The main reason for this is that it’s one of the most important benefits in employees’ eyes. 88% of eligible employees were participating in a workplace pension in 2021, and 83% value these as part of their benefits package. As an employer, showing that you care about your staff and want to protect their future is invaluable, and contributing more than the minimum amount is even more important as the cost of living sees prices soar.
Plus, if you offer a generous pension scheme, your employees are more likely to stick around thanks to peace of mind that they'll be able to retire on a comfortable income. In fact, this research found that employees consider pension contributions highly when looking for a new job, illustrating how important it is to shout about your pension offering on job descriptions, on your Careers page and throughout the hiring process. If your team is getting gold standard employer pension contributions from you, why would they want to go elsewhere?
What you need to know about contributions
The amount employers must contribute to a workplace pension depends on where you are in the world. For example, in the UK, employers must contribute a minimum of 3% and employees must contribute at least 5% of their salary. Both parties usually have the option to contribute more, with the average employer contribution sitting at 4.5%.
Bear in mind that some employers choose to base contributions on an employee’s ‘pensionable pay’, rather than qualifying earnings. Pensionable pay is typically a person’s base salary which doesn’t account for commission, bonuses or overtime. This is most likely to be the case where a business started offering a workplace pension scheme before automatic enrolment became a requirement.
The average pension pot in the UK is £35,357, which is just 12% of the recommended total of £285,000 for those retiring at 66.
Which countries offer the best pensions?
Take a look at what counts as an attractive pension plan in different countries. For more detail on benefits around the world and to help you make an informed decision when choosing your workplace benefits, check out our country guides.
The employers showing everyone else who’s boss are matching employee contributions up to the value of 10% of their salary. Not bad, right?
Statutory contributions here are significantly higher than in the UK, but the best companies offer a private company pension plan matching employee contributions up to 15% of their gross monthly salary.
In Spain, some of the most generous employers offer a supplemental plan at 100% of employees’ final salary. Oh to be Spanish!
French statutory contributions are similar to those in the UK, but if you want to pull out all the stops, you could offer an employer paid private pension that matches employee contribution up to EUR 5,149.
- South Africa
While workplace pensions aren’t a legal requirement in South Africa, it’s considered market standard for employers to contribute 9-13% of an employee’s annual salary and the employee to pay 5-10%.
Down under, employers must contribute 10% Employer Choice or Group Superannuation by law. We’ll take it!
Did you know that the best countries for pensions are Finland, Poland and Sweden? They have an average retirement age of 65 and Sweden has a 100% rate of participation in funded pensions.
Is your company based overseas but you employ staff in the UK? It’s worth noting that foreign employers with employees ordinarily working in the UK are required to provide a workplace pension and comply with auto-enrolment. Providers like Smart Pension are helping to bridge this gap, creating a comprehensive UK employee benefits package that supports international and remote employers.
How to find the best pension provider
Choosing a pension provider for your workplace scheme is a very personal choice, and there’s no data-backed way of knowing which investment strategy will give you the best returns. But there are some factors you should take into consideration when shopping around for pension plans:
- How much does the provider charge? Whether it’s an annual fee or fees for switching funds, all providers will charge you. The higher the fee, the less you’ll get in your final retirement income.
- What is the range of investment options offered by the provider like? Think about the type of candidates you want to attract. If you operate in finance or tech, for example, employees might be interested in relevant compelling investment opportunities.
- Can you easily access your plan online?
- What is the provider’s reputation for customer service and administration? If there’s a problem, you want to be able to get hold of them quickly. It’s worth checking their reputation on review sites like Trustpilot.
- How much will it cost to match employee contributions (if this is something you want to do)?
- If you’re a small business, ask if the provider has any competitive small business deals in place that could save you money
Ben makes offering pension contributions easy. We’ll connect you with a benefits consultant to help you find the right provider at the right price, and assess how it will fit in with your overall package. You’ll have access to our extensive broker network, which includes Legal & General, Aegon and Nest, to name a few. We’ll make sure all your employees are set up properly with ongoing self-serve enrolment, as well as automated provider communications.