Planned Changes to Workplace Pensions in 2012

All employers must pay into a workplace pension on behalf of their employees. Similarly all employees may make an additional contribution to their plan as well. The objective is for people to fund their own pension in order to provide a sufficient level of income for their retirement.

All employees between 22 years old and their state pension age, earning over £7,475 per year, will become eligible for auto-enrollment. The company must pay into a pension scheme on their behalf or if the member for some reason decides not be part of the scheme then they must actively ‘opt out’. Also if an employee does not qualify as an eligible member then they can choose to pay into the workplace pension scheme although their employer will not be required to make a contribution.

The administration of the pension schemes could be the biggest issue facing employers because they must ensure that their paperwork and reporting processes are compliant with the rules of the pension regulator. Employers need to keep track of all members of staff who join the scheme and documentation to show that all employees who are eligible were automatically enrolled. A list of all those who have chosen to opt out must also be provided.

For those companies that do not already have a pension scheme in place for their employees, then this new legislation will come as yet another burden to their profitability. Many companies are already swimming against the tide of the recession, so an additional statutory requirement to pay into a pension scheme for every employee will no doubt be very difficult to withstand. All these companies should therefore make plans to pay into a workplace pension at the latest staging date but it would be wise to plan for these in good time. Bear in mind that any pay rise negotiations being discussed with employees for next year should take into account the additional contributions that will have to be made into their pension fund in order to avoid any nasty surprises on the payroll.

We advise all employers to fully take on the implications of what will be expected from them, to find out when their companies staging date is and make sure they have the processes in place to report and record their scheme and ensure it is compliant with the pension regulator.

Another decision to be made by employers is which specific pension plans should be chosen. For example, should your company offer the same plan to all members of staff or would it be better to offer some a pension run through a life company and others through a NEST scheme?

We do not have space here to go into the many reasons for considering offering each type of plan so this decision will need thorough investigation. Time should also be given to an investigation of the investment strategy for the pension scheme as there can be subtle differences between providers. Good advisers will always discuss their client’s specific attitude to risk for each employee to ensure there funds are invested in line with the individual’s chosen preference.

As you can now see, the world of workplace pensions is about to change significantly and the impact of this on companies, their employees and the UK economy will be important. The best advice we can give is to ensure that your company is prepared for its responsibilities from 2012 onwards.

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