Did you know that pension allocation is one of the biggest costs in a company's budget? Still, considering its importance, it often receives the least attention. From a study of 300 000 employees, our experts have observed that 1 out of every 5 employees end up with errors in their pension savings, and we’ve explored why this happens.
Pension allocation is not just about providing retirement security but also ensuring that your employees receive what they are entitled to. However, many companies inadvertently make mistakes in pension administration that can have significant consequences for both employees and employers. Here are the 3 most common mistakes companies make in their pension administration.
Pension laws and regulations in the Nordics
1. Inaccurate salary allocations
The error occurs already in the payroll system. One of the most fundamental mistakes in pension administration is failing to allocate the right salary to the right employee. We see that a lot of employers trust their payroll system and almost take for granted that the information there is correct. Employees should receive the correct compensation, but this can be challenging to ensure. Input provided to insurance companies may not always be processed correctly, leading to inaccurate contributions. This can create a disconnect between what employees expect and what they receive in terms of pension benefits. One simple error in the payroll system can cause a large number of mistakes, be tricky to find, and even worse to fix. One mistake can also create a snowball effect which causes errors elsewhere.
2. Lack of control and oversight
Another common issue is the lack of control employees have over their own pension contributions. They lack the tools and knowledge to monitor the pension allocations themselves. Compared to regular salaries, pension contributions are not as transparent.
Employees may not even know how much is being set aside for their pensions, and there may be no one actively overseeing the process. When employees receive their monthly salaries, they can easily spot any errors and report them. However, the same level of transparency does not exist for pension contributions. Employees often do not have the tools or knowledge to monitor their pension savings, and they may not even know where to look for information.
3. Lack of regular pension audits
A common challenge is the lack of oversight in the entire pension administration process. Pension audits are not usually made, since adjustments happens only when the employer report changes in an employee’s pension allocation. According to our experience, this does not happen too often. Worst case, an employee can go decades with the wrong pension saving amount.
To avoid this mistake, consider making thorough pension audits and analyses a prioritized habit. Dive into your payroll systems and the information you give to insurance companies to ensure they accurately reflect the pension allocations and meet employee expectations. Correct any errors as they are found and maintain close communication with your pension provider to make sure the contributions are accurate. By taking a proactive approach, you can help your employees receive the pension contributions they deserve.
What you can do:
To address these challenges, consider the following steps:
- Invest in trustworthy systems: Choose a reliable payroll system and ensure your payroll team learn to use it well.
- Continuous Learning: Keep your payroll staff updated on system changes and industry news; software gets frequent updates and improvements.
- Collaborative Auditing: Involve multiple team members in pension audits to increase error-spotting chances.
- Stay Informed: Stay on top of payroll news and explore new software solutions to optimize processes. New software and solutions reach the market all the time, and you never know when the perfect product for you will show up.
- Outsource. Whether your business is big or small, leaving something as important as pension to a dedicated provider will help ensure accuracy.
Avoiding these pitfalls is not just good practice; it is a commitment to your employees' financial well-being. Investing in a reliable payroll system and maintaining an informed, vigilant team will go a long way in ensuring a seamless and error-free pension administration process. If you want to learn more how we can help companies with ensuring correct pension administration, visit IDUR’s website for more information.
