Fundamental changes in pension legislation are coming in 2012, but why, as an employer, should you act now?

Successive governments have been concerned that as a nation we are simply not saving enough for our retirement, compounded by an ever increasing population of longer
living baby boomers. In fact around 19 million non-retired adults aged 18+ are not contributing to a pension*

New legislation
By introducing changes to pensions legislation, the Government is hoping to encourage more people to save and is proposing two fundamental changes to take effect in 2012; first, it will be required that employees are automatically enrolled into a pension scheme, and second, employers will be required to make a payment for all employees who decide to remain in the scheme.

Personal accounts and what they mean for employers
Automatic enrolment is a process whereby, without giving their express permission, the employees become members of the pension scheme, but are able to opt out if they wish.
If they choose to stay in the scheme, the employer will be required to make a pension payment of atleast 3% across a range or band of the employee’s earnings. Band earnings were earnings between £5,035 and £33,500 for tax year 2008-2009, with these amounts being indexed each year in line with earnings growth. The only employees exempt from the scheme will be those younger than 22, older than state pension age, or earning less than £5,000 a year.

If you enrol your employees in personal accounts, they’ll have to make a payment of 5%
of band earnings, but in common with other pensions the Government will add basic tax relief of 1%, leaving the real cost to the taxpayer at 4%. Additional higher rate relief can
be claimed by employees if appropriate. You should note that tax relief can be altered and its value to the investor depends on their own circumstances.

Employers already running their own pension schemes will be given the option to ask employees to make a payment to the existing pension as well. Both employer and employee payments into personal accounts or other private pension schemes will be phased in over a three-year period from 2012.

What personal accounts will look like
The personal accounts scheme will be a very large occupational pension scheme run
on behalf of the Government, with the Personal Accounts Delivery Authority (PADA) initially designing and setting up the scheme, and a board of trustees taking over its running once established.

In order to fulfil as wide a requirement as possible, personal accounts are expected to
be quite basic, with the default investment choice anticipated to be a tracker fund, plus a small number of other investment options. At retirement, the purchase of an annuity on the open market may be the only way of taking benefits.

Compliance
The Government, via the pensions regulator, is responsible for making sure employers comply with pensions regulation reform legislation. There will be penalties for those that
do not adhere to the new rules and employees will be entitled to whistleblow.

What next?
Although, as an employer, this new legislation may sound daunting, we at Web Trustee Services feel it should be viewed as an opportunity to look at your existing arrangements and craft your own bespoke pension scheme to provide income security and control of your assets in retirement. If it’s your objective to engage and retain your staff, while
giving them flexibility in the future, the personal accounts scheme may not be the right option for you.

Whether you employ one person or one thousand people this legislation represents a massive influence on the way you will attract, pay and retain your staff, your payroll
costs and ultimately how much tax your business will pay. Therefore, it is imperative that you plan now to ensure you are fully prepared for these new arrangements when they are implemented in three years’ time.

The team here at Web.ts is able to call upon over 30 years of experience in dealing with pension schemes and is fully conversant in the specifics of the proposed legislation, so
if you wish to discuss your own requirements and options in a friendly and jargon-free way, please contact Gerry Baker using the details below:

T: 01483 205890, or
E: gbaker@bg-webts.com

*Source: Preparing for the National Pensions Savings Scheme (Mintel Report, April 2008)