General lack of public awareness and worry expressed over the take up of the Government’s auto-enrolment workplace pension scheme during the past year may have been somewhat exaggerated.
However, with even the Pensions Minister Steve Webb himself expressing concerns that employee take up could be as low as 35% it would have been no surprise if early results indicated that the scheme was failing to gain traction, inspire confidence…or worse still, was even bombing.
Last week I wrote an article about the new Flat Rate Pensions. After I had done it I thought some may find it helpful to grab the essentials about it on an easy view slide show.
So here is my new Flat Rate Pensions Slide Show. Hope you like it!
The Government have a headache, in fact ANY Government of whatever shade would have a headache given the enormity of the task—how to get people saving for their retirement with a decent pension that will still be valid come their retirement date.
And therein lies the first problem—we are all living longer. The Office of National Statistics have just predicted that a third of all babies born in 2012 will live until they are 100!
PricewaterhouseCoopers reckon that children born today will eventually need to work until they are 77 before they qualify for their state pension. Hmm, and people complained when it went to 65. The reality is that SOMEONE will have to pay for all these folks living so long, and it looks as though a lot more of us will be “elderly” when we help others live longer too.
For small businesses, more concerns are also being raised about how small the takeup of the Government’s auto-enrolment scheme called NEST has been. So far with only a few months to go before Auto Enrol is manadatory NEST has only had a 4% take up… paltry. (NEST is short for the Government’s “National Employment Savings Trust”).
As time rolls on and the date for the beginning of the possibly the biggest ever changes to our pensions system, I thought it was a good time to speak out to all you employers and employees out there who will be effected by this.
Make no mistake about it, employers are going to face additional cost and administration burdens under this new pension regime. However, the good news is that there is time to plan and prepare, but time is running out.
There are four basic steps that can help employers plan.
1. Find out when the staging date is
This will give employers a deadline for implementation and a point to work back from. The staging date will be based on how many workers an employer has or, if there are less than 50 workers, the last two characters of the employer’s ‘Pay As You Earn’ reference.
There are more than 40 staging dates spread over four years from 2012. Larger employers will go first, smaller employers last.
You can find out your corporate client’s staging date by using this handy staging date calculator from Scottish Life.
2. Find out the duties that are likely to apply
Every employer will have some duties to perform but the duties will be different depending on the types of worker they employ. As a rule of thumb, any worker over age 22 and under state pension age, and who earns more than around £7,500 a year, will be treated as an ‘eligible jobholder’.
These workers will need to be automatically enrolled into a pension scheme by their employer. As long as these workers stay in the pension scheme, the employer will have to pay contributions. Those workers who don’t fall within this category will still have to be offered a pension scheme by the employer, and in some cases the employer will have to pay into it.
3. Review pension provision
Employers who already offer some form of pension provision will need to make sure that their existing scheme meets a minimum standard. This generally means that there must be a minimum contribution rate, made up of both employer and employee contributions.
If the scheme isn’t up to scratch contributions will have to increase. Building up these contributions to the minimum standard slowly could be preferable to employers rather than waiting until the last minute and facing a high up-front bill.
Employers who don’t have a pension scheme will have to set one up sooner or later. Again, starting to do this as early as possible would help employers to build the scheme up at their own pace.
4. Consider the impact on the business
There is no doubt that automatic enrolment will have cost implications for every employer, large or small. Employers will need to consider how they will meet these costs.
Can they simply absorb the costs, potentially reducing profits?
Will the costs of their goods or services need to increase?
Will staff remuneration structures have to change?
Will HR processes and systems need to change?
Will business plans need to be adjusted to reflect the increase in costs?
These are just some of the questions that finance directors and business owners will need to address. Planning ahead, well before the staging date, could help smooth any cost increases, avoiding last minute shocks.
It’s clear that employers will face a major challenge when their employer duties start. With the economic climate as it is, it is probably even more important to plan as early as possible. It won’t be easy but help is out there. If you wish to have a free initial consultation with us please just get in touch and we’ll be more than happy to have a chat about your situation.
Pension reform There will be more pensioners in the future and those pensioners will live longer. This will put a massive strain on the State pension system.
To alleviate this burden, the Pensions Acts 2007 and 2008 make changes to the Basic State Pension, the State Second Pension and introduce new employer duties for pensions. Read more ›
So much happened with regards to pensions in 2009 it’s difficult to know where to start. In a year dominated by one financial crisis after another, headlines included:
Reductions in the size of defined contribution pots due to falling share prices
More companies looked to reduce their defined benefit liabilities by closing or restructuring their schemes
High earners were hit with a reduction in the tax relief on their pension contributions
Bank employees pensions were bailed out by Government using public money
The gap between private and public sector pension provision became ever wider
The UK state pension was frequently described as ‘the worst in Europe’ when it was once right up there amongst the best.
The constant stream of bad news meant that the much mentioned Baby boomers became very worried. They worried about how falls in their retirement income will affect their ability to support their elderly parents and their children. So worried are they that a new phrase emerged… ‘baby gloomers’.
NOTE: I have been writing articles here since 2007 so please take note the date of the article, because obviously, things like laws or tax allowances etc may have changed since then.
I do try my best to keep up to date, but I'm only an humble advisor and there are hundreds of my financial articles here! Please call or email if you need to double check something. I'll gladly help.
"I have introduced many clients of mine to Billy as I have complete trust in his professional ability." Tom Queen, Solicitor - Thomas Queen & Co. Dunfermline, Fife.
"I've found Billy a personable yet professional practitioner who offers sound advice and realistic proposals backed up by facts. I'd wholeheartedly recommend Billy." Rory Paterson, Director - Mediacom Scotland Ltd
Hi everyone, on a small rant today!
