Although there has been a deal of publicity we are still surprised that many employers are completely unaware of the pension changes commencing in October 2012. And of those employers who are aware of the impending changes many are very sketchy on the details.
The changes themselves arise due to the increasing burden of paying retirement benefits from current year's tax receipts is a major concern and the new pension reforms are the governments way of plugging that gap.
This is a big change and the pensions shakeup will have a major impact on your business. As we see it there are three key issues facing you as an employer:
- There will be an increased administration burden with a new regime of auto enrolment of employees and handling additional opt in, opt outs and reviews
- Your employment costs will be rising incrementally from 1% to 3% per annum through new mandatory employer pension contributions.
- Qualifying employees will now be forced to save for their retirement through mandatory contributions increasing from 1% to 4%.
In a nutshell this means more administration and increasing employment costs for you with a reduction in take home pay for your employees.
What are the details? What will we need to be doing?
In a little more depth the new regulations will confer the following obligations on all employers
- You will need to automatically enrol all eligible workers into any 'qualifying pension scheme'
- Eligible workers are those aged 22 to state pension age and earning over the Personal Allowances.
- Other workers can ask to be enrolled into the scheme
- Eligible workers can include some contractors and agency workers
- If you don't have your own qualifying company scheme the government is providing an alternative the NEST (National Employment Savings Trust)
- Phased in at lower rates initially you'll will need to contribute at least 3% of each worker's eligible earnings to the scheme
- Employees own contributions and tax relief will be added to this to meet a minimum 8% contribution rate.
Full details can be found on the pension regulators website at their website http://www.thepensionsregulator.gov.uk/.
Your Action Plan - Be smart! Prepare and plan ahead.
- Find out when the changes will impact on your business. Our friends at Scottish Widows have provided a very useful schedule for the Pension Reform Staging Dates
- If you haven't got a pension scheme already consider creating one. The default NEST scheme isn't suitable for everyone as it will not deal with high earners, has a limited choice of investment funds and is limited on flexibility in terms of transferring in of employees existing pension provisions.
- If you have a got an existing pension scheme undertake a review to see if it qualifies and what changes can be made to make it qualify.
- Consider salary sacrifice arrangements. Using the potential for NI savings with a salary sfice scheme an employee on the UK average earnings of £25,948 per annum can increase their net pay by 0.82% and increase the value of contributions to their new pension scheme by 8.63%. This is without any increase in your employee costs.
How can we help?
At Dataplan we will be helping our employers to meet the demand of pension scheme monitoring and auto enrolment when the practical aspects become clearer.
If you have any pension questions the Pensions Advisors at our sister company FB Wealth Management Limited, an FSA regulated company, can help you check the details on your existing pension or hand hold you through creating a new one. Just contact Stewart or Lisa and they will arrange a free consultation.