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Choosing a pension scheme

  1. Overview
  2. Your role in helping a client to choose a scheme
  3. What to consider when choosing a scheme
  4. Find a new pension scheme for clients

Your role in helping a client to choose a scheme

Overview

If your client has staff to automatically enrol they will need a pension scheme. They will need to either set up a new scheme or check their existing scheme meets certain criteria.

Finding a new scheme

Your client will need to find a scheme that is suitable for them and their staff. Issues to consider include cost, whether it works with their payroll and tax implications for staff.

It’s advisable that your client allows plenty of time to make their choice. They may ask you to help them. Find more information on what to consider when choosing a scheme.

There are a number of different types of pension schemes available and different types of providers offering these schemes. The type of scheme most likely to be available to your client is a scheme run by a large, specialist provider that is designed to be used by many different employers. For information on ways to find a pension scheme, go to find a new scheme for your client.

You can provide investment advice to employers choosing a pension scheme, but you need to be authorised to provide advice to individuals. If you are concerned about what level of support and guidance you can give, go to your role in helping a client to choose a scheme or watch the short animation.

Checking an existing scheme

If a client wants to use an existing pension scheme for automatic enrolment it will need to meet certain criteria. This could involve changing the scheme rules or terms and conditions.

Check with those running your client’s pension scheme to see whether they can use it for automatic enrolment. Alternatively, for more information about the criteria that schemes need to meet, go to what to consider when choosing a scheme. If your client can't use their scheme, they'll need to choose a new one that meets the requirements for automatic enrolment.

What letters are sent to my clients from TPR?

The Pensions Regulator (TPR) sends out letters and emails to employers to support them with their automatic enrolment duties. These letters form a series of communications which are sent to your clients during the automatic enrolment process, helping them to understand their duties and guiding them through what to do next.

You may find it useful to familiarise yourself with these, to help your clients understand what do to and by when.

Advanced guidance

This resource may help if you have more detailed questions on the above:

When you’re contacted by an employer looking for help with choosing a pension scheme for automatic enrolment, you can either provide advice or information to them yourself or refer them to another adviser.

Key points

  • You can provide investment advice to employers choosing a pension scheme, but you need to be authorised to provide advice to individuals.
  • You could support an employer by providing factual information, helping them to compare schemes, making a recommendation or referring them to another adviser.
  • Ultimately, it’s the employer’s legal responsibility to choose a pension scheme.

Authorisation to provide advice

You can provide investment advice to an employer choosing a pension scheme for automatic enrolment. However, you should only provide investment advice to an individual if you have the appropriate authorisation from the Financial Conduct Authority.

It may not always be clear whether an employer is seeking advice as an employer or an individual, eg if your client is thinking about joining the scheme themselves. You may want to specify in your letter of engagement that any advice you provide to a client is provided in their capacity as an employer – and not as an individual.

If you belong to a professional body they will have a set of ethical standards that you should refer to, which may include that you have sufficient knowledge and experience to offer automatic enrolment services. You should also check to make sure that any automatic enrolment work that you carry out is covered by your professional indemnity insurance.

Ways to support clients

The ultimate responsibility for choosing a scheme lies with the employer. However, you can support a client with this task in a number of ways:

  • provide factual information, eg you could identify the pension schemes available and provide a comparison of the schemes’ investment funds, charges and services
  • recommend a specific pension scheme for automatic enrolment – for more information, go to find a new pension scheme for clients
  • refer your client to another adviser – you can use websites such as the Money Advice Service retirement adviser directory, which contains advisers who can help employers choose a pension scheme for automatic enrolment

If you recommend a specific pension scheme, there are a number of issues that you may wish to consider with your client. Go to what to consider when choosing a scheme.

Automatic enrolment solutions

If you offer a solution that links to one or more specific pension schemes (eg the payroll software is set up to link best with a specific scheme), you should make your client aware that there may be other pension schemes available that could be more appropriate for their staff. If you don’t do this, there’s a risk that you could be seen to be restricting an employer’s ability to actively choose their own pension scheme.

Write to your client’s staff

If you have agreed as part of your services to write to your client’s staff about automatic enrolment and their rights, you need to make sure you don’t inadvertently provide investment advice. We’ve developed letter templates to help you with this task.

Help a client with tax relief

You may need to help an employer with how tax relief is applied to staff pension contributions.

Many pension schemes only support one tax relief method, so you should understand which system they use.

When you help a client to choose a pension scheme for automatic enrolment you should check it meets certain rules. You should also consider issues such as cost, whether it works with your client's payroll and what tax relief method it uses.

Your client may ask you to help them check whether they can use their existing scheme or to help them find a new scheme.

Key points

  • Check that a scheme meets the automatic enrolment requirements and will accept all your client’s staff.
  • Consider issues such as whether it works with your client’s payroll software, what additional help they need, the investment options offered and the charges to pay.
  • Help your client to choose a new scheme if they can’t use their existing scheme for automatic enrolment.

Can your client use the scheme?

The scheme that your client uses for automatic enrolment must meet certain requirements, eg it doesn’t require staff to do anything to join the scheme or to choose their own investments. Other requirements include the scheme:

  • being tax registered in the UK
  • being an occupational or personal pension scheme
  • requiring a minimum level of contributions to be paid into the scheme – this depends on the type of scheme

For more information on the minimum requirements for schemes to qualify and to be used for automatic enrolment, see Detailed guidance 4: Pension schemes (PDF, 352kb, 38 pages).

Some schemes may only accept employers with a minimum number of staff or who have staff that earn a certain amount. Check if your client can use the scheme for all their staff.

Costs and charges

You should ask the provider what charges your client and their staff will pay.

Your costs and charges

Different providers may charge your client in different ways, for example an ongoing monthly charge or a one-off up-front charge for the life of the pension scheme. Some schemes may also have an exit fee for employers who change pension schemes.

Staff costs and charges

Pension scheme members pay charges to cover the cost of managing their savings. Some schemes may have different charges for different members. For example, some schemes may have lower charges for low paid staff, which may mean that these staff pay less for their pension, whichever type of tax relief the scheme uses.

You may want to help your client weigh up the costs and charges against the level of services that the scheme will provide. Some services may make automatic enrolment easier for your client over the long term.

Tax relief

Tax relief arrangements are a factor in choosing a workplace pension scheme. It's best for your clients to choose a scheme that uses a tax relief method which suits their circumstances.

If your clients employ staff who don't pay income tax, make sure they check that the scheme uses relief at source to add tax relief from the government. Tax relief means that some of the money from your client's staff members' pay that would have gone to the government as tax, goes into their pension instead.

It's important to advise your clients that there are two ways that staff can get tax relief on what they pay into their pension (however, some providers use different names):  

Relief at source

You can tell if it's relief at source if the pension provider has to claim the tax relief from HMRC.

Net pay arrangements

If your client need to calculate tax on the pay that is left after they have paid into the pension, then the scheme uses net pay arrangements.

A scheme can only use one method for all staff and this will affect your client's lower or higher paid staff in different ways.

Both methods of tax relief have their benefits, and we don't recommend one above the other, but it's a good idea for your clients to check that the method they're using is best for them.

 

Income tax considerations for tax relief

 

Does your client have staff who don't pay income tax?

If your client has staff who don't pay income tax, their staff will only get tax relief if they choose a scheme that uses relief at source.

If your client chooses a scheme that uses net payarrangements, these staff will not get tax relief and will pay 20% more for their pension. Some schemes that use net payarrangement may have lower member charges for staff so your client will need to consider this carefully.

If your client uses salary sacrifice to manage pension contributions, staff who don’t pay income tax won’t get tax relief whichever tax relief method your client scheme uses.

Does your client have staff who do pay income tax?

If your client has staff who pay income tax they will get tax relief whichever scheme they choose.

However, if your client has higher and additional rate taxpayers and your scheme uses relief at source, they will need to claim their full tax relief by completing a tax self-assessment. You can find income tax rate information on GOV.UK.

Which schemes use each tax relief method

Find out which schemes use each tax relief method.

You can find information about other schemes for automatic enrolment at the Pensions and Lifetime Savings Association (PLSA) Pension Quality Mark website.

Payroll software

If your client uses payroll software they should ask the payroll provider whether it'll work with the pension scheme they'd like to use.

Your client also needs to check that the software can carry out all the automatic enrolment tasks. For more information, go to check the payroll process.

Letters for staff

Your client has to write to their staff individually to explain how automatic enrolment applies to them, including how tax relief works. Some pension schemes may offer to do this for your client. If the scheme doesn't do this, we have letter templates which you or your client can use. Your client's payroll provider may also offer this service.

If English isn't the first language of all your client's staff, they may want to check whether the scheme can provide communications in other languages.

Information and support

Pension schemes may offer extra services such as working out who needs to be put into a pension scheme, processing requests to join the scheme or helping with ongoing duties. Discuss with your client what services they need.

It's important that the scheme your client chooses regularly sends communications to them and their staff.

Check that the scheme's communications clearly explain:

  • how much money a scheme member has saved
  • how their money is being invested and how the investments have performed
  • what their projected savings will be at retirement
  • how much of the money they pay into their pension will be taken in charges
  • whether they can achieve the retirement they want at their current rate of saving
  • whether they qualify for tax relief on what they pay into the scheme and if they have to do anything to claim it

Annual statements and other communications should help your client's staff to understand how they're progressing towards funding the retirement they want.

Investments

Any scheme that your client uses for automatic enrolment must have a default investment arrangement for staff who don't choose their own investments. Charges paid out of member savings in default investment arrangements must be no higher than 0.75% a year of the member’s fund.

Check whether your client's scheme needs to offer investment options that suit the particular needs of their staff, eg ethical funds or funds that comply with Sharia law.

Downloadable summary of what to consider

How to help your client choose a pension scheme
PDF 38KB , 2 pages
A summary of the key factors to consider when recommending a pension scheme to your client.

There are a number of different ways that you can find a new pension scheme for a client – you could look at schemes that have been independently reviewed, the government’s scheme and schemes listed on industry websites.

Make sure you understand your role in helping a client to choose a scheme and you know what to consider when choosing a scheme.

Key points

  • Employers are increasingly using schemes run by large, specialist providers that are designed to be used by many different employers.
  • You can find pension schemes in a number of ways including schemes that have been independently reviewed, the government scheme and schemes listed on industry websites.

Types of pension scheme

The type of scheme most likely to be available to your client is a defined contribution scheme run by a large, specialist provider that is designed to be used by many different employers. These include 'master trusts' that are run by a board of trustees and 'group personal pensions' that are run by financial service companies, eg insurance companies and investment managers.

These schemes generally cost less and require less involvement from the employer compared to other schemes.

Find a pension scheme

You or your client should look at different schemes before deciding which is suitable for them and their staff.

The following schemes have told us they are open to small employers.

Other schemes are available but may not be open to all employers.

Schemes listed by industry bodies

You can find lists of other schemes that may be available for automatic enrolment on the following website:

Important

Please note that there are many other pension schemes available that aren't listed here. There may also be other ways for them to demonstrate to employers that their scheme is well run. The regulator takes no responsibility for checking that schemes' claims are accurate.

The regulator cannot recommend, nor does it endorse, any particular pension scheme or any organisation. Inclusion of a scheme or mention of any organisation here does not guarantee their suitability. This web page is provided for information and guidance only.