Preparing for 2012An Introduction to Pensions Reform Pensions Reform is a package of both state and private pension changes to be introduced in 2012 that will completely change the face of the pension industry in the UK. Employers will have new responsiblities to contribute to their workforce's pension plans, and this will have a big impact on your business. The overall aim of the government's pension reform strategy is to get more people saving more for their retirement, whether through good private pension schemes or through the new National Employment Savings Trust (NEST) scheme. The Personal Accounts Delivery Authority (PADA) is currently designing this scheme to help low to medium-earning employees save for their retirement if they don't have access to a good-quality employer-sponsored pension. All employers in the UK other than single-person companies, whether they have one member of staff or 10,000, will need to take action to comply with their new responsibilities under pensions reform. Main Points
The Pensions Act 2008 sets out the new pension responsibilities for employers from 2012 and sets out the establishment of NEST, which is effectively a national pension scheme. Here are the main points: Employers will have to automatically enrol all their eligible jobholders (workers who are aged between 22 and over but under state pension age, earning between £5,035 and £33,540 and not already members of a 'qualifying' scheme) into either a 'qualifying' workplace scheme or the NEST. Jobholders can opt out of the pension scheme if they want to. But if they choose to stay in it, the employer will have to pay a pension contribution of at least 3% of the jobholder's 'qualifying earnings' into either the qualifying scheme or NEST. The main employer responsibilities start in October 2012 and will be staged in over four years. Contributions will be phased in over five years from the date the first employers are staged. Employers and employees only have to pay combined minimum contributions of 2% of qualifying earnings, rising to 5% in October 2016, with the full 8% minimum contributions starting in October 2017. Qualifying earnings are the band of gross earnings payable to the employee between £5,035 and £33,540 based on a 12-month pay period. These figures are expected to be uprated for 2012. Earnings for this purpose include salary, commission, bonuses, overtime, statutory sick pay and statutory maternity pay. Employers who offer a 'qualifying scheme' for the jobholder won't have to contribute to NEST for them but their contribution should at least match the minimum level. The NEST scheme will be run by a trustee corporation as a defined contribution occupational pension scheme. The Pensions Regulator (tPR) will be responsible for making sure employers comply with their legal responsiblities. There will be financial penalties for those who don't, and even the possibility of prison. Employees will be able to whistleblow.
What this means for you
You'll have many new choices to make in the run-up to October 2012. The first choice will be to decide whether to automatically enrol eligible jobholders into your own company pension scheme, or NEST. This isn't a stark choice - you may choose one solution for one set of jobholders and another for a different set of jobholders. You should seek legal advice on this if required. Which solution you opt for depends on many things. Simple, quick and efficient administration will be paramount: collecting the right contributions at the right time and applying them promptly will be crucial in running a succesful scheme. Pension providers offer various flexible solutions to help meet this need and have extensive experience in this area. Communications will also be very important. Having your company name and logo on pension brochures and/or company pension scheme websites can build loyalty from employees, which will be essential in helping you recruit, reward and retain the right employees for your business. Pension providers offer a range of tailored communications to help you select the right communications for your particular workforce. For example, a company pension scheme website that gives employees access to a host of useful information and useful calculators to help them make decisions on pensions. Pension providers can set up a company pension scheme that is individually tailored to the needs of your business. NEST won't be able to offer that flexibility. What you need to do
Although the details aren't finalised yet, it's certainly worthwhile starting to look at the broader picture and discussing your new responsibilities with your adviser now. If you already offer your workforce a pension scheme then your new responsibilities may mean a much higher membership take-up. Considering how to move to a new position gradually will help ease your cashflow, and reduce your communication and education responsibilities come 2012. For more information, please contact your financial adviser.
This article is reproduced here with permission from Aegon Scottish Equitable
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