More Pensions Reform

The current plans for pension reform consist of a package of changes to both State and private pensions with the aim of getting more people to save more for their retirement. The Government estimates that about 7 million people are not saving enough at the moment and as a result, it is putting the onus on employers to encourage people to save.

Starting in 2012, employers’ responsibilities will be built on two principles:

• Auto enrolment of individuals into a suitable pension scheme, and
• Compulsory contributions

Auto enrolment means that an individual is automatically enrolled into a pension scheme and doesn’t need to do anything or make any decisions. Basically, this applies to any employee between age 22 and State pension age.

The total minimum contribution will eventually be 8% of ‘qualifying earnings’ with at least 3% payable by the employer. The balance will be paid by the employee but this includes tax relief.

Contributions can either be paid into a qualifying pension scheme chosen by the employer or, failing that, into a Personal Account. These are designed to be a low cost scheme option aimed more at low to medium earners but they will not have the same benefit options offered by current arrangements. The Personal Account scheme will be known as NEST (National Employment Savings Trust).

Employers duties will be phased in over 4 years starting in October 2012 with larger employers first. Dealerships employing less than 50 staff will start their processes from August 2014. The costs will also be introduced in stages so that the full 8% applies from October 2017 onwards.

Although these changes will not begin to take effect for another two years, employers need to start planning now rather than leave it to the last minute.

• If there is no existing scheme in place, consider introducing one now and phase contributions (from the company and employees) in so that by the time the new rules take effect, it qualifies for exemption.
• If there is an existing scheme, have it reviewed to ensure that it meets the minimum standards required. Consider whether employees actually value the scheme or if any improvements can be made.
• Talk to staff to make sure they are also aware of these changes. It is not only the employer that is required to pay into the scheme.

Many dealerships will struggle to cope with these changes and the increasing burden on profits that are already stretched in the current economic climate. However, a pension scheme is a valuable benefit which, if properly arranged, can help to recruit and retain good quality staff. Planning ahead will help to control costs and ensure that the extra administrative burden is taken care of.

This article is based on our understanding of current legislation which is subject to change.

If you would like further information or if you have any concerns about these changes and the impact they will have on your company, please contact:
Derek Prentice, Director, Kingston Smith Financial Advisers at
dprentice@kingstonsmith.co.uk

Kingston Smith Financial Advisers is a trading name of Blacktower Financial Advisers Ltd which is authorised and regulated by the Financial Services Authority.

Click here to go back the manufacturing page.