What does a workplace pension really cost your business?
Workplace pensions are now a legal requirement in Gibraltar, but many small business owners are not sure what one actually costs.
That is because providers do not always present their fees in the same way. Some bundle costs together, while others charge certain items separately, making it difficult to compare like for like.
The good news is that once you know what to look for, understanding the costs is much simpler.
Here is a straightforward guide to the three main cost areas, the small print worth checking, and a worked example of what a workplace pension could look like in practice.
The three costs to budget for
The first is employer contributions, which is the biggest cost and is set by law. Employers and employees must each contribute a minimum of 2% of gross earnings into the workplace pension. Employers can choose to contribute more if they wish to offer a more generous employee benefit, but 2% is the legal minimum.
The second is the implementation fee, a one-off fee to establish the scheme, onboard employees and ensure everything is set up correctly from day one. Because it is a single, upfront cost, it is usually one of the easiest fees to compare between providers.
The third is ongoing administration. Once a scheme is up and running, there will usually be an annual fee to cover its ongoing administration. Depending on the provider, this may include Trustee duties, scheme administration, record-keeping, reporting, member support and access to financial advisers. This is also the area where providers differ the most, so it is worth asking exactly what is included and how the fee is calculated.
The small print worth checking
A few extra costs can sit outside the three main fees above, depending on the provider and the type of scheme. These might include GFSC regulatory fees, financial statements or scheme wind-up costs. Not every scheme incurs these charges, and some providers include certain items within their quoted fee while others charge them separately.
A worked example
Consider a business with five employees, each earning £30,000 a year, choosing Sovereign’s Foundation Plan, designed for employers looking for a straightforward, compliant workplace pension.
Employer contributions represent the legal minimum and will be the same regardless of which provider is chosen. On a total annual payroll of £150,000, the employer contribution at 2% comes to £3,000 a year, or £250 a month.
To establish the Sovereign Foundation Plan, there is a one-off implementation fee of £750. Employers who are members of the Gibraltar Federation of Small Businesses (GFSB), use EasyPay, or participate in Sovereign’s Discount Card Scheme receive a 30% discount, reducing this fee to £525.
The Foundation Plan has an annual administration fee of 1% of Assets Under Administration (AUA). Rather than being invoiced separately to the employer, this fee is deducted quarterly from pension accounts, helping spread any significant changes in the investment performance of the funds. It covers Trustee obligations, annual scheme administration and access to Sovereign Wealth services as the appointed wealth advisers to the Trustee.
As with all workplace pension schemes, future regulatory fees may apply. Where applicable, these are invoiced directly by, and payable to, the Gibraltar Financial Services Commission (GFSC).
At a glance
Costs for a business with 5 employees earning £30,000 a year and opting for the Sovereign Foundation Plan:
| Cost | Example |
|---|---|
| Employer pension contributions | £3,000 per year (£250 per month) |
| Implementation fee | £750 one-off (or £525 one-off fee for GFSB members, EasyPay clients and Discount Card Scheme participants due to our 30% discount) |
| Annual administration | 1% of Assets Under Administration (AUA) |
| GFSC regulatory fees | May apply |
Notice that only one of these costs, the employer contribution, is fixed by law. Everything else depends on how a provider structures its fees and what is included in the price quoted. That is why it is important to compare the full cost of running a scheme, not just the headline figure.
Questions worth asking before choosing a provider
Before choosing a provider, it is worth asking what is included in the annual administration fee, and whether there are any regulatory or statutory charges billed separately. It is also worth understanding how the annual fee is calculated, whether fees will change as the scheme grows, and what other costs could arise during the lifetime of the scheme. Finally, it is reasonable to ask a provider for an estimate of what the scheme is likely to cost over the next five or ten years. A provider that is transparent about its pricing should be happy to answer each of these questions clearly.
The bottom line
Understanding what is included, what is charged separately and how fees are calculated will help employers compare providers fairly and avoid surprises later on.
At Sovereign transparency is just as important as value. Our team of experts are happy to explain every part of its pricing, answer any questions employers may have and provide a personalised cost projection based on an employer’s own workforce, so employers know exactly what to expect, both now and over the years ahead.
