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| Pension reforms - huge changes for employers |
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These will be phased in but eventually will be as follows:
Employees - will have to contribute 4% of their salaries;
Employers - will have to contribute 3% of salary;
Mr Darling - will contribute 1% in the form of tax relief.
You will see that employees are going to have less money in their pay packets so may expect a pay rise to compensate! Employers also have an extra 3% to add to their staff costs and may want to recoup this through wage cuts. There could clearly be a conflict here and with 7% of gross pay having to be paid into a pension scheme, this is a lot of money to come out of someone's pocket. Will it come from yours or your employees? Or both?
EMPLOYERS
The New Rules:
From 2012, you will have to automatically enrol all eligible employees in a qualifying pension scheme and boost employee's contributions with contributions of your own.
This is unless your employees already have a private pension scheme or are aged under 22 and earn less than £5,035 pa.
The qualifying scheme can either be a Personal Account or your own Company Scheme (subject to certain conditions).
If you already run a Company scheme, you will have to check to see if it qualifies under the new rules. The Government's Personal Accounts are likely to have significant limitations in terms of investment potential and overall flexibility/control. We anticipate most employers will wish to set up their own company pension scheme.
How Elsby & Co can help:
We think the best solution is to address this well in advance. For example, to account for the 3% employer contribution you could set up company pension plans for staff now. You could contribute 1% in the first year but give staff 1% less of a pay rise than you would have done. If you do the same each year then the cost could be covered by the time the new rules come in.
Our financial planning partners can help set up and administrate a company pension scheme for you.
Please contact us if you would like any help/advice/support.
Word of warning DO NOT advise your employee. An employee can opt out of the system, but they may not want to if you, the employer are contributing 3% and the government 1%. It will be illegal for an employer (deliberately or inadvertantly) to advise any employee what to do. Even a comment such as "most people are choosing to..." is illegal. You could risk being sued 20 years later for an employee's pension losses if you make the wrong choice.
EMPLOYEES
The New Rules:
If you dont already have a private pension and are aged between 22 and the state retirement age, earn over £5,035 per year, you will be able to contribute 4% of your annual salary into a Personal Account.
Your employer will match your contribution with their own contribution of 3% and claim a top up of 1% tax relief.
You will automatically be enrolled with a Personal Account by your employer, unless, you already have a personal pension scheme.
You will have to make a personal contribution of 4% of your earnings into either the Personal Account or your employers qualifying Company Scheme. We anticipate this will be administered along side the company payroll scheme.
You will be able to opt out of the system, but will have to renew your opt out every 3 years. The onus will be on you to opt out.
We suggest you speak to your employer to find out how they intend to administer the new regime.
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