Workplace pensions in a small business

RheaSilva

I work for a small family business and our pension auto enrolment is due to start in 2017, for me and one other employee. For a few reasons I feel this may not be the best option and would like some advice on this.

Firstly, this is not for another two years and having decided to start a pension I think it should be sooner rather than later. Based on my age (32) I plan to contribute 16% of my income, and if I waited till 2017 this would need to be 17%. I also plan to continue saving with an ISA.

If I contributed 16% to a workplace pension, would this increase the amount my employer had to contribute? If I went down this route I would like to minimise the burden on the business. I worked out the minimum employer contribution for me would be around £250 per year, and to only benefit this much doesn't seem worth the time and effort my boss would have to put into sorting it out, which would be the real burden on the business rather than the monetary cost.

I don't know how much help and advice would be available to my boss in selecting and setting up a workplace pension, and I feel I might be better off taking it into my own hands, sitting down with an IFA and finding out what is the most suitable thing for me personally. Although I'm aware my boss can't encourage the other employee (his nephew) to opt out when the time comes, I could give him the info he needs to go down the same route if I feel it's the best option for us. I'm sure my boss would also be happy to contribute to the cost of the IFA.

So that is my plan. I don't know if it's good or wise, so any advice would be very welcome.

atush

It will all depend on what your workplace offers. Some will match only 1%, others more. So as a min you should put in enough to get their max contribution. It would be silly to ope out of free money from your employer?

that might mean keeping your PP open and paying the money in excess of the amount you have to put in the WP pension.

It could well be, if both of you have pensions open, he may well decide to pay into these existing pensions rather than setting up new ones?

Southend1

Don't feel bad about taking the employer's contribution. Firstly it is your legal right, secondly you work hard and deserve a dignified retirement and thirdly you can bet your last pound that the boss has been building up his own retirement fund.

hyubh

RheaSilva wrote: »

So that is my plan. I don't know if it's good or wise, so any advice would be very welcome.

I think trying to actively engineer a loss of your own employment rights rather foolish - if you had an ownership stake things would be different, but as you're just an employee... well, you're just an employee at the end of the day. What if your plan came to be pursued, then at a later point the nephew decided he'd have the employer contributions after all and make a fuss about having been 'tricked' out of them before? If prosecuted the company would have no leg to stand on and easily lose.

More prosaically, even if all eligible employees did voluntarily wish to opt out, that wouldn't allow the employer to avoid getting involved in the logistics of AE given (under the auto-enrolment rules) an eligible employee can't opt out before they start.

Instead of thinking up a ruse to get your employer out of its AE responsibilities, I would work on the assumption the business will contribute the legal minimum using the cheapest available pension provider. This you should take, however given the low numbers you should look to bolster your pension savings independently too.

atush

Actually i pwuld not suspect the employer of underhand dealings here. In fact I would suppose he will go with the easiest option.

I suggest you (with or w/o your fellow employee) suggest he does a salary sacrifice scheme. this means he still pays in whatever he decides, but it costs him (and you by defaut) less money so he may feel more generous in his provision.

Have him (with his accountant) look into salary sacrifice pension. where he puts yours and his money into pension before tax is deducted. This means both of you save Nics on the pension amount. Giving you a higher tax free amount (ie 32% rather than 20) and gives him the savings of his employers nics on the money as well.

Both of you would be quids in, so something to discuss at your next staff meeting?

hyubh

atush wrote: »

Actually i pwuld not suspect the employer of underhand dealings here.

Nobody has suggested otherwise - rather it's been the OP thinking of 'underhand dealings' (or more exactly, what could subsequently be construed as such) on the employer's behalf ('Although I'm aware my boss can't encourage the other employee...'). For all sides it will be better not to risk such things, and take up (e.g.) your own constructive advice instead.

RheaSilva

hyubh wrote: »

More prosaically, even if all eligible employees did voluntarily wish to opt out, that wouldn't allow the employer to avoid getting involved in the logistics of AE given (under the auto-enrolment rules) an eligible employee can't opt out before they start.

Ah, I see, that puts a different light on things altogether. So would I be able to contribute my preferred 16% to the workplace pension, or would I still have to set up a private pension to contribute the extra amount?

LHW99

That would probably depend on what scheme the employer uses.

Even so you can still contribute to a PP / SIPP in the meantime, and then when autoenrollment happens decide whether to suspend payments into the external scheme and put all contributions into the workplace one or split contributions between them.
It never hurts to have additional funds, as these can always be transferred into a workplace scheme at a later date (even if not at this employer), or used to put workplace pension savings into if you leave this employment and go somewhere where there is a workplace scheme that you can't or don't want to transfer the funds into.