Workplace Pensions: What UK SMEs need to know

1. Help employees save enough for their futures
Many employees assume that being enrolled in a workplace pension means that they have effectively ticked the retirement box. In reality, minimum auto-enrolment contributions may not be enough for everyone, particularly those who start saving later, take career breaks, work part-time or have several small pension pots from previous jobs.

Employers can prompt their staff into at least asking the right questions – from checking whether they could afford to increase contributions to ‘guestimating’ what income they might need in retirement and confirming what their State Pension forecast is.

A simple education campaign can make a big difference. This could include signposting employees to pension calculators, state pension forecasts and provider tools.

It can also help to explain the impact of small contribution increases over time, particularly where employees are able to benefit from tax relief and employer contributions.

You might also want to remind staff that their retirement age is not necessarily fixed by their pension provider. Subject to minimum pension age rules, people can usually choose when to access their defined contribution pension, with timing having a major impact on how long their savings need to last.

2. Encourage people to look beyond the default option
Most employees are invested in their pension scheme’s default fund. This can be appropriate for many people, particularly those who do not want to make active investment decisions. But it’s not automatically the best fit for everyone.

Some employees may have a higher or lower appetite for risk. Others may want to consider ethical, sustainable or even Sharia-compliant options. Employees closer to retirement may also need to check whether their investment strategy still matches how they plan to access their pension.

This does not mean encouraging people to make unnecessary changes. It simply means helping them understand the choices they have. Ask your pension provider or adviser for clear, plain-English materials explaining the default fund, alternative options and the importance of reviewing pension choices at key life stages.

3. Can you get better value for money?
Employers should regularly review whether their pension scheme is still suitable. A workplace pension which may have been set up years ago to meet automatic enrollment duties may not still be the best option today.

Value for money in defined contribution pensions looks set to become a much bigger focus this year. The Pension Schemes Act 2026, a series of reforms designed to improve outcomes for savers, will make it easier to compare different pensions schemes with far more scrutiny on performance, charges, outcomes and overall value for money.

For employers, pension scheme selection should not be based on charges alone. Low charges still matter of course, but they are only one part of the picture. Investment performance, service standards, clear communications, an easy-to-use online portal, governance and member outcomes all affect the overall value employees receive.

4. Make digital engagement part of the employee experience
Pension engagement can often be limited because retirement can feel like a distant issue and, amidst the maelstrom of day-to-day worries, easy to put off. Digital tools, though, can help simplify pensions and make them much more accessible.

Most pension providers now offer interactive online portals or apps where members can view their pension value, update beneficiaries, check contributions, model retirement income and review investment choices. Yet many employees may never even have logged in.

SMEs can use simple reminders and regular prompts to help keep pensions top of mind, not languishing at the bottom of employees’ to do list. Ask new starters to register for their pension portal once their first contribution has been made, for example, and include pension reminders in annual benefit communications. Pay rises, role changes, parental leave or reductions in hours can also be leveraged to encourage employees to check the impact on their pension planning.

5. Prepare for Pensions Dashboards
Pensions Dashboards, set to be introduced by the UK government in October this year, will allow individuals to view all their pension savings in one secure place online, helping them to understand and plan for retirement more easily. This could be particularly useful for employees who have changed jobs several times and lost track of older pension pots and is expected to pique employee interest in pensions overall.

Employers should be ready for potential questions and know where to direct staff for guidance and who to contact at their pension provider. It may be worth planning a proactive communications campaign around dashboards once public access is confirmed.

6. Support employees approaching retirement
Retirement decisions are becoming more complex. Many defined contribution savers can choose from several options, including taking cash, buying an annuity, using draw-down or combining different approaches. Each option has different tax, income and risk implications and is particularly important because decisions made at retirement can be difficult to reverse.

Employees approaching retirement may therefore need more support than just providing a standard pension statement. Again, employers can help by signposting impartial guidance and making sure provider communications are easy to access.

Need more support? Our pension specialists can help you navigate the options available and implement the right scheme for your business.

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The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing.
Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Lycetts, its officers or employees, for any loss in connection with the content hereof and any such action or inaction.