How to communicate workplace pension benefits to your employees

With Pension Awareness Day happening recently, now may be the ideal time to check in with your employees and help them fill any gaps in their pension knowledge.

By supporting your employees and educating them about workplace pension benefits you can help them prepare for their retirement and get the most out of the benefits you offer them.

This is often one of the most effective ways of retaining valuable team members and attracting new talent to your business.

Teaching your staff about their workplace pension may be especially helpful as a study by LV= (1) found that 23% of adults don’t know how much they are paying into a pension and 60% don’t know how to take money from their pension in a tax-efficient way at retirement.

Here are some effective ways to help your employees understand workplace pension benefits.

Start with the basics

Since the introduction of auto-enrolment, you must automatically enrol qualifying employees in a pension scheme whether they ask to be or not.

This was a remarkably positive change for many as it means that more people start building their retirement savings early.

That said, you might enrol qualifying employees with very little input from them, so some of them may not know that they are part of a pension scheme at all. And those that do know may not understand how the contributions work and what you as an employer pay into their pension.

As such, it may be a good idea to start with the basics.

Let your employees know that you automatically enrol them in your workplace pension scheme provided they:

• Work in the UK
• Are not already part of a suitable workplace pension scheme
• Are at least 22 years old, and younger than State Pension Age – there are plans to extend auto-enrolment to those aged 18 and older in the future
• Earn more than £10,000 a year in the 2023/2024 tax year – this earnings threshold will also be abolished by a future finance bill.

Additionally, explain that a minimum contribution of 5% is normally deducted from their qualifying earnings – any earnings more than £6,240 in the 2023/2024 tax year. As their employer, you must contribute a minimum of 3% of their qualifying earnings too.

You may decide to contribute more than the minimum required by law and, if this is the case, it’s a good idea to share this information with your employees too.

Explain the tax benefits

The tax relief that your employees receive on their pension contributions can be incredibly valuable, but many people don’t fully understand how it works.

Consequently, they may not know how to make the most of tax relief, particularly if they are a higher- or additional-rate taxpayer.

Explain to your employees that they benefit from 20% tax relief at source on pension contributions, meaning a £100 contribution effectively “costs” £80.

To add to this, higher-rate taxpayers can claim an extra 20% tax relief, and additional-rate taxpayers can claim another 25%. However, your employees must claim this through self-assessment.

Additionally, funds in a pension may fall outside of their estate for Inheritance Tax (IHT) purposes.

By educating your employees about these tax benefits, you can demonstrate how increasing pension contributions may help them build their retirement savings faster. Some may also find that they can use their pension to pass wealth to their family more tax-efficiently.

Give them control of their pension savings

Once you have shared the basics of how their pension works, it may be useful to give your employees the knowledge they need to exercise more control over their retirement savings.

A good place to start is to explain how to increase their pension contributions, and what the potential benefits of this are. You may also want to give them information about choosing where their pension is invested as this is a significant knowledge gap for many people.

Many workplace pensions have a variety of funds that members can select, but your employees may not realise they have such a choice if you don’t tell them.

Even when they do know, according to the Financial Services Compensation Scheme (FSCS) (2), only 44% of people feel confident choosing and managing their personal pension scheme.

This may be because they do not realise that their pension provider invests the funds in the first place.

Also, they may not have the knowledge to make informed decisions about how to invest their pension savings. As such, explaining how their pension savings are invested and how they can adjust this may be beneficial. They may also require some support when choosing specific investments.

Offer them the opportunity to attend pension workshops

By teaching your employees about their workplace pension, you can help them understand the value of the scheme and encourage them to take a more active interest.

However, offering them access to more extensive support may boost their retirement planning even further.

Our pension workshops are an excellent resource that give your employees personalised advice as they approach retirement. So, you can continue supporting your employees now and when they eventually exit the business.

Get in touch

Educating your employees as they prepare for retirement is one of the best ways to support them. We can provide the tools you need to do this.

Email info@aspirafp.co.uk or call us on 01454 632 495.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

(1) www.lv.com/about-us/press/three-quarters-of-uk-adults-have-no-idea-what-...

(2) www.fscs.org.uk/globalassets/industry-resources/research/fscs-consumer-r...

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