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Workplace pensions - reducing costs case study

Situation

The UK division of a global parent based overseas had been charged with reducing costs in the business in all areas. The employer paid a charge to cover administration services of their pension plan with a pension provider amounting to £25 per person per annum. The total charge amounted to £45,000 per annum. The Chief Executive Officer felt this was an area that could be reviewed and sought help from Jelf in terms of negotiating the terms of the existing arrangement.

Problem

The Company had gone through its Auto Enrolment staging date in 2014 and completed re-enrolment in April 2017. Most employees were paying the lowest level of contributions under the rules of the plan and average fund sizes were not large. So on commercial terms there was little motivation for the pension provider to consider reducing its charges.

Implication

It would have been possible to find a new pension provider who would offer terms that removed the employer fee. However, there was a real risk that unless everyone moved their funds to the new supplier, the Annual Management Charge (AMC) on any new plan could have been higher than the current charge. Even though the employer charge could potentially be been removed altogether, there would have been significant disruption in changing the pension provider and potentially a message to employees to say that the cost of their Annual Management Charge would rise.

Pay Off

By working closely with the employer and pension provider, we were able to carry out a market review to prove that the same Annual Management Charge terms could be obtained without an employer charge being applied. Working with the provider, it has been agreed that the employer fee could be reduced to £10 per person per annum saving £27,000 p.a. in costs to the business. And there is also agreement that the pension provider can encourage employees to pay more and consolidate old pension plans into the arrangement and so lift the value of the scheme to the provider. It was also agreed that if the pension provider is successful in raising the quality of the scheme value to the provider, an extra reduction or removal of the employer charge could be discussed.

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