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The Workplace Pension Revolution

Saturday, February 02, 2013

Later this year, the Government is introducing legislation that will precipitate what promises to be the biggest shake-up in workplace pensions yet.

It will be one of the biggest challenges most companies will have to face in terms of providing benefits for their staff and it is hoped it will encourage workers, some maybe for the first time, to begin contributing to their own pension – and their own future financial well-being.

Workplace Pensions logoFrom October 2012, the new law, universally referred to as auto-enrolment, will require all employers to enrol (eligible) staff into a qualifying workplace pension scheme if they are not already in one – and pay compulsory contributions into it!

That’s a big deal, because at present, the Government estimates about 7 million people are not saving at all for retirement, or are not saving enough. Couple that with the fact that we’re all living longer and will need a lot more money to live on in retirement and we have a potentially very worrying situation brewing. The state pension is hardly likely to be a panacea as its value continually erodes.

Auto-enrolment is intended to provide a solution for these problems. The legislation programme consists of two distinct threads – auto-enrolment and compulsory contributions, and the introduction of a new, low cost, Government-backed pension scheme, the National Employment Savings Trust (NEST), which could provide a solution for employers to meet their obligations. Both will take effect from 1st October, but there are staged implementation dates, largely dependent on the number of staff on payroll, with the larger employers ‘going first,’ as it were.

So what constitutes an auto-enrolment ‘qualifying scheme?’ Well, essentially it must pay enough contributions to meet the minimum levels set by the Government and offer a default fund into which the contributions are automatically invested. It should also have the administrative infrastructure in place to enable auto-enrolment of all eligible employees. Eligible employees are those aged between 22 and state pension age, earning more than the ‘minimum threshold.’ (£8,105 in the 2012/13 tax year.)

Employees can choose to opt out, though – if they don’t mind giving up their employer’s contribution! With money tight at the moment it is likely that quite a few workers, especially the younger element, may elect to exercise this option, which could

Those employers who have yet to address the auto-enrolment issue will have to move fast. The Pensions Trust (www.tptae.org.uk) estimate some firms will need more than a year to get ready! Companies need to check their staging dates, assess the financial impact (which could be considerable) and decide which type of scheme to adopt. Pension schemes already in place will have to be checked to ensure they meet the minimum standards for auto-enrolment.

The whole procedure is very complex and we would advise employers to seek independent financial advice as soon as possible. At Brunsdon we’re here to help. Don’t leave it too late.

(This information is based on our understanding of the pension reform legislation. Further details can be found at www.thepensionsregulator.gov.uk and www.nestpensions.org.uk )

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Brunsdon is the trading name of Brunsdon Financial Services Ltd. (Reg. No. 03434005), Brunsdon Insurance Brokers Ltd. (Reg. No. 03433998), Brunsdon Asset Management Ltd. (Reg. No. 07098607) and Brunsdon Auto-Enrolment Solutions LLP (Reg. No. OC402486). All companies are registered at Goodridge House, Goodridge Avenue, Gloucester GL2 5EA. Tel. 01452 623623 E-mail. enquire@brunsdon.co.uk. Brunsdon Financial Services Ltd. and Brunsdon Insurance Brokers Ltd. are authorised and regulated by the Financial Conduct Authority. Not all products and services offered are regulated by the FCA. The FCA does not regulate tax advice.

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