Act now to manage effects of workplace pension reforms

Workplace pension provision will be revolutionised by key reforms introduced in the Pension Act 2008 that take effect from 2012. All employers in the UK will be affected whether they are companies or not-for-profit organisations. Government estimates suggest that around seven million people are under-saving for retirement. As a result, the pensions reforms place the onus on employers to ensure individuals save for retirement:

• For the first time in the UK, all employers will automatically have to enrol all eligible employees into a workplace pension scheme that meets or exceeds certain legal standards.
• In addition, all employers will be required to pay into a pension scheme on behalf of employees.
• Employers will have to comply with the new legislation even if they already offer a pension scheme to employees.

When will employers be affected?

The new regulations will be rolled out between 2012 and 2016; the date companies are affected being dependent upon the size of their largest PAYE scheme. Buzzacott can advise when your start date will be.

What rules will employers have to follow?

There are a number of strict rules governing the requirements placed on employers. These include minimum levels of contributions and meeting deadlines in terms of enrolment amongst others. The legal requirement to comply will rest with employers, if you do not comply, you may face considerable fines.

What are the costs?

There will be a direct cost to all employers in the form of a compulsory pension contribution for all eligible employees - a minimum of 3% of an employee’s ‘qualifying earnings’ by 2016.

Contributions are not the only cost employers are likely to face because complying with the auto-enrolment rules may place a considerable administrative burden on employers.

What type of pension scheme can be used?

Employers must ensure pension contributions are paid to a qualifying pension scheme. The qualifying scheme can be an employer’s existing pension scheme, as long as it meets certain minimum criteria. Alternatively, employers will have the option to use the new workplace pension scheme; the National Employment Savings Trust (NEST).

What is a Qualifying Scheme?

Employers may use their existing pension scheme or establish a new arrangement instead of, or as well as, using NEST. Any scheme chosen must meet certain qualifying criteria. Qualifying schemes offer a more comprehensive and flexible pension arrangement than NEST, potentially offering a greater range of investment options, higher levels of permitted contributions and possibly no upfront charge on contributions.

What is NEST?

NEST aims to provide a basic, low cost pension scheme and is generally targeted at organisations that employ low to moderate earners and which do not have, or do not wish to use, their own qualifying scheme for all employees.

NEST is a trust-based national pension scheme that will operate in a similar way to other defined contribution pension schemes, with an individual’s funds being invested and the final value being dependent upon how much is paid in and investment performance.

Charges will be applied to cover the set up costs for NEST. In addition, there will be ongoing administration and investment management charges.

What are the positive steps employers should be taking now?

1.  Phase in contributions over a number of years; to reduce the impact on cash flow and balance sheet

2.  Consider whether any existing pension schemes meet the qualifying criteria

3.  Consider how any existing pension schemes can be improved/amended, e.g. ongoing administration/ efficiency

4.  Prepare for the administration requirements required to comply with the regulations

5.  Review the opportunity to create a National Insurance saving that could be used to further reward employees or help fund the cost of increased contributions

Employers should not wait until their start date before taking action.

How Buzzacott can help:

Buzzacott Financial Planning provides specialist Employee Benefits advice. The team is happy to discuss the impact of the new pension rules on your business and the opportunities of taking action early.

Preparing for Workplace Pensions Reform Seminars

We are hosting a series of free seminars regarding this topic where we will provide an overview of legislative changes and offer practical guidance on how to deal with these changes. The seminars will take place during October and November, see the events section of this website for more information and to book.

Get in touch

We are also very happy to meet individually with employers to offer assistance in this area and help you prepare an effective action plan.

If you have any questions regarding this topic please get in touch with your usual Buzzacott contact or a member of our Financial Planning team at enquiries@buzzacott.