Pension Auto Enrolment Š are you (or your employer) ready?
Pension auto-enrolment means that by law, all employers will have to pay into a Pension for their employees.
As you are no doubt aware, the Government’s requirement for all employers to automatically enrol eligible staff into a workplace Pension begins on 1st October 2012.
This means that if you or your employer does not currently have a Pension scheme in place, they need to decide which Pension scheme to use to meet the Government legislation!
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 something can be done to manage the situation proactively:
A summary of what all employees and employers should know:
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 number of employees; however, by April 2017 even the smallest of companies will be included.
The contributions will be phased in over a period of 3 years. Employers will pay a minimum of 1% from October 2012 – 2017, 2% from 2018 and 3% from 2019 onwards per employee. Employees will pay gross contributions of 1%, 3% and 5% respectively. Contributions will be based on ‘Qualifying Earnings’.
The Government has now passed the laws necessary to introduce a new national pension scheme, known as the National Employment Savings Trust (NEST).
In order to be exempt from using the NEST scheme, 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 earners wanting to pay higher levels of contributions
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
Employers need to decide if they want employees to know that they are being offered something better than the Government’s minimum standard and that they are not being restricted to the Government’s limited payments and limited fund choices? And then, Employers need to decide if they want the security of knowing that people experienced in dealing with Company Pensions are managing the day to day running of their 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 increased cost over the amount it will be mandatory to pay in from 2012, or soon after.
Issues for employees to consider
Has your employer communicated to you about the forthcoming changes and what the new system will cost you?
Do you know what Pension scheme your employer will be paying your money into?
Does your employer know whether you would value a better scheme than the Government minimum?
The importance of a sensible plan
If you (or your employer) have not already done so, either Professional Financial Centre (East Midlands) Ltd or another professional adviser should be appointed to provide advice regarding whether it is viable for the company to set up and run a QWPS. If we are selected and it is a viable proposition, we will assist with all aspects of the Pension scheme and make sure that things are simpler than if the NEST scheme was used. 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 everyone about the superiority of the QWPS over the NEST scheme.
We run several QWPS schemes and would be pleased to provide you with testimonials on request.
Professional Financial Centre (East Midlands) Ltd
We have helped many companies and private clients to put a sensible financial plan into place. When looking at the arrangements available we are able to prove that we have only your interests at heart. As changes happen, we review your plans, adjusting them to meet changing economic and personal circumstances.
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.
As a member of the Derby Law Society, by quoting code LS1 you and / or your employer and clients will receive a 5% reduction in our costs.
Richard Shanks (Managing Director)
Professional Financial Centre (East Midlands) Limited
Chartered Financial Planners
Wesley House, St Michael’s Lane
Authorised and regulated by the Financial Services Authority. This article is not a recommendation and you should obtain appropriate advice before acting on any of the information provided.