It was the last thing on your mind when you started the business. But now the number of your employees has grown, they're getting twitchy about funding their retirement - a situation that's not helped by all the recent publicity on final-salary pensions. Your HR consultants have told you that these concerns are a barrier to recruitment. So how do you go about introducing a pension scheme?
ASK YOURSELF WHAT YOUR AIM IS. Is it to make you competitive with other employers for recruitment purposes, or simply to meet your legal obligations?
The scheme should be part of a remuneration policy that meets strategic objectives, such as attracting talent or maintaining a flexible workforce.
CONSULT THE TROOPS. Find out how high a pension scheme is on your employees' wish list and what features they would like. If you're opting for a stakeholder scheme, consultation is mandatory, although you're not obliged to act on the results. 'You can't ask sensible questions about the level of contributions,' says Simon St Leger-Harris, a consultant with actuaries Hewitt Bacon & Woodrow. 'But you can ask people how they would like the pot to be spent - earlier retirement age or higher death benefits?'
CUT YOUR CLOTH. A fully fledged occupational pension scheme will only be cost-effective for firms with at least 50 to 100 employees. Only consider a final salary scheme if you are prepared to take on open-ended liabilities.
Smaller firms should look at an off-the-shelf stakeholder or Group Personal Pension scheme.
KEEP IT FLEXIBLE. Ken Barclay, a worldwide partner at remuneration consultants Mercer, says people may want to pay more or less into their pension at different times. Offer the option to take cash, he says, or to stop or top up contributions without penalty. However, you must ensure everyone takes life cover.
HOW GENEROUS ARE YOU FEELING? Robin Ellison, national head of pensions at lawyers Eversheds, says the ideal level of employer contribution is 10% of salary. 'If you can't afford that, you might want to start with something more modest where the employer matches the employee's contribution up to 3% or 4% of salary, with the option to increase it in future.' There's no legal obligation to contribute at all, of course, but that's where competition to recruit and retain staff comes into play.
DON'T OVERCOMMIT. Avoid specifying a level of contributions in your employment contracts, in case you need to revise it later, says St Leger-Harris.
'You'd lose a lot of face if you had to reduce contributions, so it's better to start lower. You could include a discretionary element, paid only if profit targets are met.'
SHARE IT EQUABLY. You don't have to pay the same pension benefits to all staff; executives often get more and some companies pay enhancements according to age or length of service. But Barclay says: 'There's a good argument for everyone getting the same, irrespective of age, sex, full-or part-time status. With EU legislation, we may soon be forced down that road.'
CHOOSE CAREFULLY. Look at factors such as performance, charges, investment policy and features before you select a manager. Actuaries, pension consultants and independent financial advisers should help you choose the best scheme.
If you get it wrong and have to switch, it will be embarrassing at best.
SELL IT TO YOUR STAFF. 'Somebody could later make a financial claim against you on the grounds that they weren't aware of the scheme,' warns St Leger-Harris. Give employees the written opportunity to opt in on a regular basis.
DO SAY: 'We'll provide the means for employees to join a flexible pension scheme with the benefit of employer contributions.'
DON'T SAY: 'What's a stakeholder? A posh fork?'