What a Pension Review Actually Finds — and Why Most SMEs Are Overpaying

The pension scheme nobody has looked at recently

Most SMEs set up a workplace pension scheme when auto-enrolment was introduced, chose a provider that was straightforward to implement, and have not looked at it seriously since. The scheme is compliant. Contributions are being made. The provider sends annual statements nobody reads.

In the majority of cases, that scheme is costing the business — and its employees — more than it should.

What the charges actually look like

Workplace pension charges are primarily expressed as an Annual Management Charge (AMC) — a percentage of the total fund value deducted each year. A charge of 0.75% sounds modest. On a workforce with a combined pension pot of £6 million, it represents £45,000 per year leaving the scheme.

The market for workplace pension charges has changed significantly in the last five years. New providers and renegotiated arrangements are routinely available at 0.3–0.5% for employers of 30+ employees. The difference between 0.75% and 0.4% on a £6 million fund is £21,000 per year — every year, compounding into employee retirement outcomes over decades.

Most SME employers do not know what their current AMC is. Most have never compared it to what is available in the current market.

What a review actually examines

A structured pension review covers five areas:

• Charge benchmarking — comparing the current AMC against the current market for equivalent employers
• Default fund performance — assessing whether the default investment option is appropriate for the age profile and risk tolerance of the workforce
• Member engagement — what proportion of employees are actually engaged with their pension; what communications are in place
• Contribution adequacy — whether current contribution levels are likely to produce adequate retirement outcomes for the workforce profile
• Governance and compliance — whether the scheme meets current regulatory expectations and employer duties

The review does not always recommend switching providers. In a recent engagement with a large UK retail group, the review concluded that the existing arrangement was appropriate and no change was needed. The value was in the certainty — and in introducing an immediately useful benefit (employee savings platform) that had no cost to the employer.

The employee side of the pension conversation

For most employees, the pension is the largest financial asset they will ever accumulate — and the one they understand least. Most auto-enrolled employees have never made an active choice about their contribution level, never reviewed their investment options, and have no idea whether they are on track for a retirement income that meets their expectations.

This matters commercially. An employee who understands their pension — who has had a conversation with a financial planner and adjusted their contributions accordingly — is both better off financially and more likely to feel that their employer has done something genuinely useful for them.

In one 85-employee engagement, Finch Theory facilitated £120,000 of additional annual pension saving across the workforce — not from increased employer contributions, but from employees making informed decisions about their own contribution levels after education and one-to-one guidance.