The importance of Pension Planning Š Part Five

Derby District & Law Society (D& DLS) magazine – September 2011

The importance of Pension Planning – Part Five

By Law all employers have to pay into a Pension for their employees

That means if you are an employer (regardless of size) – in less than 5 years time you will not only have to pay money into a Pension for your employees – but you will have to automatically enrol them into a Pension. This also means that if you do not currently have a Pension plan you also need to decide which Pension plan to put your employees into!

If you are an employee – you will be thinking great! I will get a Pension payment from my employer. However, unless you exert some pressure on your employer, it is likely you will end up with the Governments woefully inadequate National Employment Savings Trust ‘NEST’ scheme.

This will be the biggest upheaval in the Pensions system in a lifetime. You must read on, as there is a limited window available in which you, your employer or your corporate clients, can do something to manage the situation proactively:

A summary of what all employers should know regarding the change in Law:

From October 2012, employers will have to automatically enrol their ‘relevant’ employees that are not already in a Qualifying Workplace Pension Scheme (QWPS), into a pension scheme and pay a minimum level of contributions. The process starts with companies with the largest numbers of employees; however, by 2016 even the smallest of companies will be included.

The contributions will be phased in over a period of 3 years. Employers will pay 1% from October 2012 - 2016, 2% from 2017 and 3% from 2018 onwards per employee. Employees will pay gross contributions of 1%, 3% and 5% respectively. Contributions will be based on ‘Qualifying Earnings’.

NEST

The Government has now passed the laws necessary to introduce a new national pension scheme (known as NEST). 

The advantages of a Qualifying Workplace Pension Scheme (QWPS)

In order to be exempt from using NEST, an employer offering a QWPS scheme must ensure that the contribution levels are at least equal to those under NEST. The key benefits of a QWPS scheme over NEST are (please note this list is far from exhaustive!):

Employees get a better pension scheme with more fund choice and can receive advice unique to their needs

Employers can cater for higher earners paying contributions over £3,600

Employers get assistance in dealing with any issues - We see many obstacles to overcome for employers, including communicating the changes to employees and providing advice and guidance to staff with queries about pensions 

Setting up an alternative now can reduce the impact of costs and administration that could be experienced when NEST starts

Any non-compliance with the rules will result in the employer facing huge fines.

Decision for Companies to make

Do you as an employer want employees to know that you offer them something better than the Government’s minimum standard and that you are not restricting them to the Government’s limited payments and limited fund choices? Do you want the security of knowing that people experienced in dealing with Company Pensions are managing the day to day running of your scheme?

If so, then setting up a QWPS now will achieve this objective, and if used in conjunction with a salary exchange scheme, this can be done with very little (if any) increased cost over the amount you will be forced to pay in 2012, or soon after. 

The importance of a sensible plan

If you appoint us to set up and run your QWPS, we will assist you with all aspects of the Pension and make sure that things are simpler for you than if you use the NEST scheme. We will also advise on how the best outcome can be achieved for both employer and employee for as little cost as possible. We will also reassure all members of staff that you are offering a superior Pension to the NEST scheme. 

We run other similar schemes and would be pleased to provide you with testimonials on request.

Who can help me to put a sensible plan into place?

Professional Financial Centre (East Midlands) Ltd has helped many companies and clients to put a sensible financial plan into place for the rest of their lives. When looking at the arrangements available we are able to prove that we have your interests at heart. As changes happen, we review our clients’ plans, adjusting them to meet changing economic circumstances and family needs. 

As a result of our qualifications, experience and culture, we qualify to be included on the SIFA Professional Directory of IFA’s, which is endorsed by the Law Society. The database can be seen at www.sifa-directory.info.