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Nest Guide

Pensions

Update 13 Dec 2021

Major changes happening in this Coda document which will soon be retired

This page has been copied to the Handbook (Bookkeeping)

Introduction

Pension schemes are a way for employers to make a contribution towards an employees retirement. They are a tax efficient benefit that employers can provide. In the UK it is mandatory to enrol employees above a certain threshold.

Automatic pension benefits for the employed

In the past, many workers missed out on valuable pension benefits, because their employer didn’t offer them a pension or they didn’t apply to join their company’s pension scheme.

Automatic enrolment changed this. It makes it compulsory for employers to automatically enrol their eligible workers into a pension scheme. The employer must also pay money into the scheme.

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Pension Providers

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NEST⁠

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One of the most commonly used by startups as it is fairly basic but does the job well. Has one of the best integrations with Xero and HMRC and can be set up easily and quickly.

Fees: 0.3% annually and 1.8% on contributions (no monthly fee)

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Nest Guide Notes⁠

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People's Pension⁠

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Similar to NEST, PP focuses on smaller businesses and start-ups. Integrates directly with Xero and HMRC and can be set up easily and quickly.

Fees: 0.5% and £2.50 /member pa (some is given back via rebate to members)

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Smart Pension⁠

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In the same vein as NEST, it is another scheme commonly used by start-ups. It also integrates with Xero (more manual) and HMRC and can be set up easily and quickly.

Fees: 0.3% and £1.25 /member pm

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Aviva⁠

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Used by companies big and small. It's a common pension provider but has a focus on larger customers. Integration with Xero is manual and has a more complex set-up.

Fees: Apply for a quote - between: 0.2-0.75%

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Penfold⁠

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Covers all parts of the market. A startup that has just approved for auto-enrolment.

New to the market.

Flat 0.75% fee annually.

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Tax relief - Relief at source vs net pay

There are two types of pension contributions.

In a relief at source scheme, contributions are deducted from the employee’s net salary. The pension provider will then add the tax element at the basic tax rate which is currently set at 20% for all employees, regardless of the employee’s tax status. For higher rate tax payers, they will need to claim the additional tax amount back by calling up HMRC.

In a net pay scheme, contributions are deducted from the employee’s salary which means the tax is calculated on the reduced amount.

Resources

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Smart Pension⁠

(operates under net pay scheme)

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NEST⁠

(operates under relief at source scheme)

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The People’s Pensions⁠

(choice of both schemes)

Update 13 Dec 2021