Company Pension Schemes

2. The Costs

2.1 Employers typically pay between 3 and 7 per cent of employees' pay into their company money purchase schemes. Employees typically contribute a matching amount, deducted from their pay packets. Employers' contributions to a final salary scheme average between 10 and 15 per cent of payroll with employees contributing about 5 per cent of salary.

• As long as the scheme is approved by HM Revenue & Customs, employer contributions can be set against corporation tax.
• Some schemes are non-contributory. Only the employer pays into the fund.
• Employers are not obliged to make contributions to stakeholder pensions, but they may if they choose to do so.

2.2 There are several ways to reduce costs. But take advice first. You could:

• Consider closing your final salary scheme to new members and offer a less expensive money purchase or stakeholder scheme to new employees.
• Limit membership to people who have been with you for a given time.
• Increase employee contributions.
• Consider taking a contributions holiday if a final salary scheme is in surplus.

2.3 There will be ancilliary costs.

• A scheme manager should be appointed to deal with day-to-day enquiries. He or she is normally an employee.
• A final salary scheme will have to be valued on a regular basis to make sure the assets are sufficient to meet the liabilities.