Pension: What's going on?Posted by Andrew Stallard
Pension law changes in 2012 hope to protect lower paid workers in later life. Here are some considerations for employers and employees.
As we've mentioned in a few articles recently, there are a lot of changes afoot with pensions. If you're an employer, these are changes that are likely to affect you and your employees. They may also have an impact on you as an employee. We've put together the key facts here; so take a look and get yourself clued up ahead of the changes.
At present, companies with five or more employees are legally obliged to provide access to a pension scheme. This can be a low cost stakeholder, personal pension or an occupational scheme but crucially the employer is not yet obliged to make any contributions (1).
From 2012, all employers with at least one worker will be affected by the changes in workplace pension law. These changes will be introduced in stages from October 2012, initially only applying to larger employers. Each employer will be allocated a date from when the duties will first apply to them, known as their staging date. Employers can check their provisional staging date on the Pension Regulators website.
Employers can choose to bring forward their staging date but cannot choose a later date than the one they are allocated.
In summary, the changes are:
- Employers will need to automatically enrol all eligible workers into a pension scheme.
- They will need to make contributions on their workers’ behalf
- They will have to register with the Pensions Regulator
- They must provide workers with information about the changes and how they will affect them.
If, as an employer, you don't want to set up your own scheme, maybe because you don't feel confident to do so, then there is the National Employment Savings Trust (NEST) which has been established by the Government to ensure that employers can access pension saving and comply with the new regulations.
However, the scheme is untested, has few funds to choose from and is designed with the lower paid in mind. This may mean that you want to consider running a second scheme for higher paid employees and it may be a good idea to look at the whole remuneration package offered to workers including employee benefits. It's also important to remember that you don't have to go it alone: you don't have to opt for the NEST scheme, talk to your financial adviser about how you can go about creating a tailored scheme for you and your employees.
Offering a good quality pension scheme and employee benefits can be a significant factor in recruiting and retaining high quality staff. We would recommend talking with an independent financial adviser to help you find the right combination of pension and employee benefits for your business and your budget.
One more thing to keep in mind is the opt-out option and the rules surrounding it. When the new workplace pension regulation come into effect, employers will for the first time have to pay into the employee’s scheme, but the employee will still have the option to opt out of the scheme and not receive the employer’s contribution. Although this decision would mean turning down part of their pay package and might seem illogical, it may happen if an employee feels they cannot afford to save into a pension at this moment in time.
Because this would be advantageous to the employer, who would save on their pension contributions, there will be severe penalties including imprisonment for employers who try and influence workers to opt out (2). For this reason most employers will want to distance themselves from this decision process and use an outside agency to record and document this decision. Employees can rejoin the scheme at any time but the decision to remain opted out will need to be documented and reported every three years.
Looking after employees is not only the humane and moral thing to do, it also makes sound financial sense. More about how you can create the perfect pension scheme in our next article.
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1. The Pensions Regulator
2. Scottish Widows
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