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 retirement, whether through good existing schemes or through the newly named National Employment Savings Trust (NEST), previously known as the personal accounts pension scheme. The aim of the scheme is 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 employees in the UK, whether they have one member of staff of 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 the new NEST scheme, which is effectively a national pension scheme. Here are the main points: Employers will have to automatically enrol all their employees (who are aged between 22 and state pension age, earning between £5,035 and £33,500 and not already members of a good quality scheme) into either an existing 'qualifying' workplace scheme or the new NEST scheme. 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 employee's 'qualifying earnings' into either the qualifying scheme or the personal accounts scheme. Jobholders will also have to contribute at least 5% of qualifying earnings (including 1% tax relief), bringing the total contribution to NEST to 8% of qualifying earnings. These contributions will probably be phased in over a three-year period. Qualifying earnings is defined as basic gross earnings plus any bonus, commission, overtime, and statutory payments such as statutory sick pay and statutory maternity pay. Employers who offer a 'qualifying scheme' won't have to contribute to the NEST scheme, but their contribution should at least match the minimum level. The definition of a qualifying scheme is still to be finalised, but at the moment it's a scheme that meets the criteria on automatic enrolment and minimum contribution levels, and offers a default investment fund. NEST 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 will have many choices to make. The first choice will be to decide whether to automatically enrol jobholders into your own company pension scheme, or the new NEST scheme. This isn't a stark choice; you may choose one solution for one set of jobholders and another for a different set of jobholders. 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 will not 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 cash flow, 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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