Can payroll companies improve client savings with a pension?

Does the pension provider my clients use really make a difference?

More than you’d think. A considered choice of pension provider could make a massive difference to not only payroll companies but also your clients and – most importantly – their employees’ pensions. We know that accountants and payroll professionals are not financial advisers. However, you can make a difference to the value you and your clients are getting from workplace pensions, simply by pointing out that their choice of pension provider can make a significant difference. 

How could switching pension providers improve the profit margin of your payroll company?

From my own experience, and taking a conservative view of how much I’ve seen companies, accountants and payroll companies save, you could improve your profit margin by over £300 per year per client. This is based on time saving when running payroll each month, estimating billable time at £75 per hour and assuming you save at least 20 minutes per client per month. This is the time spent on tasks such as enrolling new employees, uploading contributions, manually approving payments, keeping track of Opt Ins, Opt Outs and other member changes.

How could switching pension companies save your client money? 

Pension providers have different ways of charging clients and it is worth comparing them to make sure you’re getting a good deal. Some charge the employer a set-up cost as well as a monthly fee, which can work out at over £50 per month. 

We’ve helped clients make significant annual savings by setting up salary sacrifice on their workplace pension. Not all pension providers offer this, but at Smart Pension we think it’s a simple and effective way for both employers and employees to save money. 

As an example, setting up salary sacrifice could save your client over £10,000 per year in yearly National Insurance contribution savings. This is based on an employer with 50 employees, an average salary of £30,000 per employee and employee pension contribution rates of 5% of total pay. See full example here.

How could switching pension provider save employees money in charges? 

Pension providers have different ways of charging employees, including:

• An annual management charge, which ranges from roughly 0.3% to 0.75%
• A monthly or yearly administration charge
• A percentage when the employees contribute to their pension
• A monthly fee and a percentage charge of the amount of their savings

See the table below to see how much an employee could save in charges at Smart Pension, compared with pension providers with higher annual management charges and no monthly flat fee.

For example, a saver using Smart Pension rather than a provider charging 0.75% AMC could save an employee an additional £18,851** over the course of 40 years.

**Our assumptions

‍Assumptions for a 20-year savings period
‍We’ve used an average salary of £36,000, a 45-year-old member with a retirement age of 65, a pension savings period of 20 years, transfers in of £9,000, contributions of 8% per annum on pensionable earnings, investment growth at 5% per annum and wage inflation at 2.5% per annum.

‍Assumptions for a 40-year savings period
We’ve used an average salary of £26,000, a 25-year-old member with a retirement age is 65, a pension savings period of 40 years, transfers in of £2,500, contributions of 8% per annum on pensionable earnings, investment growth at 5% per annum and wage inflation at 2.5% per annum.

Got any questions?

I hope my summary has given you an insight into what you might be able to save and how you can get more value from a workplace pension. 

See our standard charges at Smart Pension, and remember we may be able to offer bespoke pricing for larger workplace clients. Get in touch with our New Business Team at [email protected] or call us on 0330 124 7409.