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Best Occupational Pension Scheme

How to Choose the Best Occupational Pension Scheme

Best Occupational Pension Scheme

How to Choose the Best Occupational Pension Scheme

Including retirement benefits for employees is increasingly becoming more and more important. The fact that you have a pension scheme could be the only differentiator between you and the competition when trying to acquire top talent. Retirement benefits not only attract high-quality employees but also inspire them to become loyal to you. Every business, in addition, wants to build a culture where employees feel appreciated, and pension plans are one way to accomplish that. 

There are several pension scheme options available. As an employer, you are likely to choose between an umbrella and an occupational pension scheme.

In this article, we will focus on the latter, and how to choose the best occupational pension scheme.

What is an Occupational Pension Scheme?

Also referred to as company or employer pension schemes, in occupational schemes, membership is exclusive to people who work for the same employer. A good example is the Kenya Power Pension Fund (KPFF), whose membership comprises Kenya Power employees. 

The contributions in occupational schemes are usually made by both employees and employers. It could be a specified amount or fixed percentage. 

Choosing the Best Occupational Scheme for Your Employees

At face value, it may seem like employers need to be the ones creating the occupational scheme. This can be overwhelming, in addition to other responsibilities that you have as an employer. However, this is not the case, as there is an umbrella scheme alternative. 

In umbrella schemes, several employers and employees pool together to make contributions. This means that the burden of creating a scheme falls off your shoulders. Contributions here will be much less when compared to what you would contribute with an occupational scheme model. 

Below are the factors to take into consideration when choosing occupational schemes.

Stand-alone vs Umbrella Scheme Types

Stand-alone occupational schemes are formed by the employer. The employer (organization or company) needs to register the scheme with the RBA (Retirement Benefits Authority) and appoint the body responsible for running the scheme: an administrator, custodian, trustees, and fund manager. In stand-alone occupational schemes, all members must work for the same employer.

The stand-alone option requires more time investment but gives you more control. For example, the Board of Trustees comprises employees of the organization/company. They understand the company’s goals and ideals, and the scheme can be created to reflect the same.

On the other hand, in umbrella schemes, the employer only requires to pay remittances and sign a deed of adherence. The employer is not involved in the management of the scheme.

Incentives

While the objective of setting up a scheme is straightforward – saving for retirement, an employer may choose to add an incentive like rewarding long service. The employer could therefore start with a low contribution percentage and increase it over time, for example after 5 years of service. They may opt to also add an incentive like a contribution that is worth 5 times the current employee salary at retirement. 

A scheme that allows you to add incentives might be a great option. 

Budgetary Considerations

Factors like what salary is defined as ‘pensionable’ need to be considered. Should the pensionable salary be basic, net, or gross? The answer to this question will determine the percentages contributed or the specific amount contributed. 

When it comes to contributions, most employers match their employee’s contributions in amount or percentage. It is however not obligatory. 

Conclusion

Factors like the occupational pension scheme type (standalone vs umbrella), incentives, and budgetary considerations need to inform your choice of the best occupational pension scheme as an employer. Find what would work best for your current and future considerations and start with what you can.

Photo by Asaf R on Unsplash

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