Auto-enrolment pension changes

The government hopes to attract 6 to 9 million more employees to contribute towards a workplace pension from 2012. Will you be ready for these new reforms?

The proposed legislation, due to be introduced in 2012, will have wide ranging effects across every business. You can prepare now by gaining a thorough understanding of the changes and their potential impact upon your company.

While the full proposals include reforming the State Pension to make it simpler and more generous, the key reforms for employers relate to the Government’s ideas for making it easier for more people to save for retirement. The Government estimates that about seven million people are currently under-saving for retirement. As a result, it is putting the onus on employers to help encourage more people to save:

You’ll be required to automatically enroll all eligible workers* into any ‘qualifying pension scheme’. This could be your own Company Scheme if it meets certain criteria or NEST (National Employment Savings Trust), a simple, low-cost pension scheme being introduced by the Government.
You’ll be required to contribute at least 3% of each worker’s eligible earnings which is intended to incentivise them to join. Their own contributions and tax relief will be added to this to meet a minimum 8% contribution rate.
A ‘worker’ is a wider category than just employees and can include some contractors or agency workers. As a general rule, if you have to pay the national minimum wage to someone or they are working under an apprenticeship, they are a worker.

The Government is proposing key measures designed to reduce the burden on employers such as:

Compulsory employer and worker contributions will be phased in.
Simple delivery model for NEST.
Simple, straightforward, qualifying criteria for existing Company Schemes, meaning many existing schemes will meet them, perhaps with minor changes.
A ‘light-touch’ but effective compliance regime for new employer duties such as automatic enrolment.
The finer details of the legislation have not yet been finalized. However, the material changes detailed above are likely to hold. In preparation for these changes there are some things you may wish to consider:
The profile and needs of your employees – do you have a spread of moderate or higher income or employees who value more choice and control?
Will your existing scheme allow you to meet the requirements for these employees?
Do you need to review your scheme to make it qualifying, or do you need to set up a qualifying scheme?
Consider gradually increasing your existing qualifying scheme membership over the next four years. This will help avoid a sudden increase in costs due to auto-enrolment and compulsory contributions.

Preparing for these changes and obtaining specialist advice is therefore imperative to avoid any unnecessary issues when the legislation comes into effect.

For a discussion on pension provisions please contact Victoria Joiner at Bluesky IFAs on 0118 9876655 or VictoriaJ@blueskyifas.co.uk.

Created 8 August 2011