From October 2012 a new pensions regime will start to be phased in which will eventually, by 2017, require all employers in the UK to automatically enrol eligible staff into some sort of pension scheme and importantly, for the first time, to pay minimum contributions.
Employers will have to automatically enrol eligible staff in either the Government’s scheme – The National Employment Savings Trust (‘NEST’) – or an alternative scheme which meets the qualifying conditions as laid down in the legislation; this could be an existing occupational or personal pension scheme. Eligible staff will be able to opt out if they wish but employers will have a duty to re-enrol individuals who have opted out every three years.
The aim of the legislation is to encourage those who have not traditionally contributed to a pension to build up provision for their old age. It is therefore expected that many more staff than at present will become members of pension schemes and this will involve a significant increase in administration and record keeping for employers.
Experts are warning that it will take at least a year of planning ahead of the staging date to implement a suitable scheme and so employers need to start preparing sooner rather than later with the key steps being:
• To check the organisation’s staging date
• To assess your workforce
• To choose a compliant pension scheme or review your existing pension scheme
• To communicate the changes to all your workforce
• To automatically enrol your ‘eligible jobholders’
• To register with The Pensions Regulator and keep records
Every employer, no matter how small, will have to implement a staff scheme or face the threat of fines and even prison. The potential financial sanctions for failure make non-compliance a distinctly unattractive option.
There are also considerable advantages to firms, in terms of staff retention and motivation, from providing a good pension scheme. Pensions are a valued employee benefit and organisations should factor in the retention, recruitment and motivational benefits of their firm’s bottom line when deciding not only in which scheme to enrol staff, but also what level of contribution they will be making to their employees’ funds.
A key benefit to employers of not waiting until the last minute to set up their pension scheme is the forecast impact on the bottom line. At the staging date, all of a sudden an organisation is going to have to put in 3% of its salary bill as a contribution into a pension. However, if you start in advance of your staging date you will be able to take that cash flow hit more gradually and, in addition, you will be able to offset the contributions against pay rises that you may want to give to your employees. What you can’t do is wait until your staging date and then give all your employees a 3% wage cut in order to put the money into the pension fund – it is illegal to do that under the new legislation.
There are definite financial advantages for firms in not leaving auto-enrolment to the last minute. Offering a decent pension is proven to be a sound business move, and there is an abundance of suppliers and advisers out there ready, willing and able to help you through the process.