Ever thought of setting up a “bank”? That can be a smart move for medium-sized companies, too! There is a long tradition of companies setting up their own “bank” in the form of a lump-sum funded provident fund (pdUK). Legally, of course, it is not a “bank” in this case, but from a business point of view it is. This is why the pdUK is also known as the “entrepreneur’s bank” and was initially an instrument of large-scale industry for company pension schemes. But this model can also make sense for SMEs with 10 or more employees. If a company decides to set up its “own bank”, this brings many advantages for the workforce – and for the company itself. That’s why it’s becoming increasingly popular among small and medium-sized businesses.
How employees benefit from pdUK
Today, company pension plans with banks and insurance companies are often associated with poor returns. In this form, retirement provision has lost much of its appeal. With an “entrepreneur’s bank”, on the other hand, medium-sized companies can offer their employees an attractive model of company pension provision:
- Since the employer bears all the costs and the contributions paid in are not reduced by additional fees, the employees benefit from attractive returns.
- The company is free to choose the interest rate. The interest rate can therefore be higher than that of insurance policies.
- The pension model is transparent and easy to calculate.
- The pension guarantee association protects employees in the event that a company is unable to meet its obligations due to business problems. This means that pdUK is also protected against insolvency.
- The pdUK has a positive effect on employee motivation, as the company makes an active contribution to retirement provision and to closing the pension gap.
How the company benefits from the pdUK
If a company establishes an “entrepreneur’s bank”, it forgoes the involvement of banks and insurance companies. The “entrepreneur’s bank” is subject to strict regulations, must be managed in accordance with the law and regularly audited. But how does such an “entrepreneur’s bank” actually work? It’s quite simple: the contributions to the company pension scheme are paid out of the employees’ gross salary and are not subject to payroll tax and social security contributions. The employer adds his employer supplement without any deductions for the employee. This means that money that would have left the company in the case of a normal pension scheme remains within the company’s sphere of influence. This results in interesting opportunities for the company and the entrepreneur:
- The company can obtain a loan from the provident fund. This can reduce the need for borrowing from banks. This can result in interest advantages.
- Growth and investments can be financed independently of banks and on a long-term basis. The economic resilience of the company is strengthened.
- The pdUK scores with low set-up and acquisition costs.
- The expenses for the pdUK are operating expenses and reduce the taxable profit.
- The pdUK is an excellent instrument for retaining and attracting employees.
Conclusion: All in all, an entrepreneurial bank makes a medium-sized company more robust and successively expands its financial scope. It pays off in terms of employer attractiveness and can be quite a convincing point when it comes to employee retention or recruiting. THE MAK`ED TEAM has many years of experience in the implementation of an entrepreneurial bank and is a cooperation partner of Authent – a well-known professional provider of provident funds. We at THE MAK`ED TEAM know how to individually design the flexible parameters of the entrepreneur bank so that the pdUK brings the desired benefits to the company. In cooperation with Authent, we also put our service on a secure footing from a tax, legal and financial mathematical point of view. In this way, a medium-sized company that opts for pdUK has the certainty that the potential of an entrepreneurial bank will be fully exploited, both for the company itself and for its employees.