In a written statement to parliament on October 27th Minister for Pensions Steve Webb announced that the government would implement automatic enrolment into the National Employment Savings Trust (NEST) where an “adequate” alternate pension scheme isn’t offered, as recommended by independent review. These reforms will be rolled in from October 2012.
This means from October next year automatic enrolment for the Nation Employment Savings Trust (NEST) will begin for the largest employers, with all employers automatically enrolling by September 2016.
The level of contributions will also be phased in. Until October 2016 the minimum level of contributions will be 2% with 1% coming from the employer. From October 2016 till September 2017 the minimum contributions will be 5% with 2% from the employer and from September 2017 the minimum level will be 8% with 3% from the employer.
So yes, the changes are huge and will make a significant impact on business in the UK (again), especially small and micro businesses and although it may seem far away yet, now is the time to get your plans in place.
Morgen HR suggests:
Review what you have in place
Remember one of the key features of the plan is that employers should provide an adequate pension scheme for their employees. If you currently have a pension scheme in place you may already meet the new requirements or only have some small changes to make to be judged a “good quality” pension scheme.
Decide whether to run NEST or another scheme
Running dual pension schemes and offering a choice is probably not a good idea in most cases. The operation of two schemes may well be too onerous and it is feasible that any existing scheme will be devalued when compared to NEST. If you decide to operate a company scheme (perhaps still alongside NEST) you should make sure you achieve the most bang for your buck, or ROI (return on investment).
Finally, and most importantly, use the time you have
Although for many readers these changes will not be enforced until 2016 and may seem a long way off, preparation is key to a successful change over.
Automatic enrolment will result in a higher take up of pension schemes, be it NEST or company, resulting in additional administration and cost. Be prepared and able to administer it. It will also result in many employees receiving less in net pay as they suddenly start paying into a pension scheme for the first time. Make certain your employees are aware and understand the changes.
Make sure employers contributions are factored into your business plan.
If considering running you own pension scheme there are many improvements that could be made to make another scheme more enticing than NEST. (contribution structure, administration platform, fund choice etc) the more time you have to explore these alternatives the more you can control your costs.
And finally do consider that some pension providers still offer commission to intermediaries. It could be possible to offset some of the cost by perusing this option.
