Bury Business
Samuels: Pensions reform set to have major impact
10:48am Tuesday 21st February 2012
New rules designed to resolve the UK’s pensions savings crisis are set to have a major impact on employers and employees alike when wide-reaching reforms take place later this year.
With people living longer and facing the possibility of funding a retirement that could now last 20 years or more, the Government is getting employers to enrol their workers automatically into a workplace pension to make it easier for people to start saving and not rely solely on the state pension.
This automatic enrolment will allow people to decide whether to stay in or opt out of a workplace pension. It will begin in October, starting with the largest employers, and workers will automatically join and pay into their employer's staff pension schemes which could be an existing or new scheme to which the employer and the Government will contribute too by way of tax relief on personal contributions unless they specifically opt out. Smaller employers and newly formed businesses will have until 2016/17 to comply.
It is all designed to reinvigorate pension saving in the UK, create a simpler system to help people make better informed decisions about how much they need to save privately, and make it easier for them to plan for their retirement. Minister for Pensions Steve Webb has described the new reforms as “the start of a much-needed seismic shift in pension saving in this country” (Source: Department of work & Pensions press release 1st February, 2012).
The reforms follow the failure of stakeholder pension schemes, which foundered because they required no contribution commitment from the employer and excluded many smaller employers. Automatic enrolment recognises that the solution lies in private provision and compels all employers to enrol eligible jobholders in a workplace pension scheme, unless they are already a member of a qualifying scheme. Contributions will be collected and paid to the scheme by the employer through the payroll system.
For automatic enrolment, employers will have to choose a pension scheme, perhaps an existing one or a scheme set up with a pension provider. Information from the Pension Regulator will be available to help companies make this decision later in the year.
A fundamental principle is that the jobholder must be enrolled and will then be able to opt out. The success of the proposals will be largely due to apathy - jobholders not getting round to opting out. Employers will be banned from incentivising opt-outs.
‘Another option open to employers is the National Employment Savings Trust, or NEST, a centralised pension scheme being run by a Government agency (NEST Corporation) to ensure that employers, including those employing low to medium earners, can access pension saving and comply with their automatic enrolment duties NEST has a public service obligation which requires it to accept all employers who apply and offers a range of funds and fund managers designed to meet differing member needs, and to offer a default fund. As a registered pension scheme, NEST enjoys the full range of tax reliefs as well as being a qualifying scheme. It is intended as a low-cost option but does come with some restrictions.
Pensions can seem a confusing subject, full of financial jargon and complicated rules, and the new reforms provide much food for thought. Certainly for employers, a proper strategy is going to be essential and most large scheme advisers consider that planning should already have started. The project will require an accountable manager and team.
Employers should be mindful too of the requirements and restrictions of the Financial Services Act. They may invite an adviser to present to staff, and there is no problem in giving staff information that includes no recommendation or advice. In addition, there is no problem recommending that employees join a scheme to which the employer contributes. It is vital that the employer informs the employee that advice is available from a financial adviser, and the employer should take no financial reward for establishing a scheme.
For employees, it is important to remember that your life in retirement is going to be very different from your working one, both personally and financially. Outgoings are likely to be lower, but you may want to spend more money on leisure activities. Retirement is like a holiday – but every one of your retirement years has to be paid for. That is why it is essential to seek professional advice and start planning for retirement now, whatever your age, to provide an income that is going to see you through potentially many more years than those enjoyed by previous generations.
To receive a complimentary brochure covering Financial Planning, Pensions, Protection and Inheritance Tax Planning, contact Stephen Samuels of Samuels Financial on 0161 773 5777, email info@samuelsfinancial.co.uk or visit samuelsfinancial.co.uk