UK: SME/Professional Counsel - Employee Benefits - Pensions made to measure.

What to consider when designing a company scheme.

When it comes to pension provision for employees, different considerations apply depending on the business' size and plans for growth. No minimum size dictates whether a particular pension scheme is worthwhile. The type of scheme should be chosen on the basis of the number and identity of members. The business should consider who to include - all staff, certain staff (by grade, age or service) or key employees - using the benefit as a recruitment/ retention tool. It should also think about what members' total expected contribution levels will be.

Other questions a business should ask itself include whether it wants to set up a company scheme, give employees a 'pension allowance' in addition to salary, or pay into the employee's own personal pension? How should the pension contribution be fixed, and what variations, if any, should be provided for grade, age or service? Should the business seek independent advice in designing the pension plan and selecting the provider, and if so, how should the adviser be remunerated?

Employee benefit packages cannot be designed or implemented in a vacuum.

They must be relevant to the operational context of the business, consistent with the employer's culture, sufficiently flexible not to act as a barrier to recruitment, and the costs and contributions should be affordable and sustainable, but high enough to be valued by the beneficiaries.

For small, family-run businesses, the Small Self-Administered Scheme (SSAS) and the Executive Pension Plan (EPP) remain popular. These are usually made available to family members or to senior executives, but are less appropriate if other employees are to be included. Instead, a group personal pension scheme provides a pension at retirement date based on contributions made over a working life. These are grouped to reduce administration costs and maximise investment returns. At retirement, a lump sum is used to buy an annuity (a guaranteed yearly income) and the pensioner can take a percentage (25%) as a lump sum.

A final salary pension scheme is probably a less attractive option to smaller, growth businesses because of the costs and complexities involved.

It provides a defined benefit based on a number of years' service and salary at retirement date. It is usually expressed as 60ths: 20/60ths of, say, a £20,000 salary at retirement date gives a pension of £6,666.66 a year.