The government has estimated that 7 million people will not have enough savings once they retire, so proper planning is essential.
In 2012 one of the cornerstones of the government’s pensions reform was implemented with the establishment of the National Employment Savings Trust (NEST). This marked the start of both auto-enrolment and compulsory employer contributions to pensions.
All employers will ultimately have to provide a ‘work place’ pension for their staff. This is different to previous rules regarding Stakeholder pensions and is being enforced more rigorously with significant fines being levied for non compliance.
The workplace pension could be an existing company pension scheme, a personal pension or a stakeholder scheme. Alternatively it could be the new NEST scheme, which is effectively a cheap, no frills pension plan.
The major difference between these changes and previous reforms is the compulsory element. For almost every member of staff, an employer will have to:
- automatically enroll their employees into the workplace pension
- contribute to that employees pension scheme as a legal requirement.
- deduct employee contributions from salaries to make sure the minimum savings are made.
There are three main ways how the minimum contributions can be calculated. However as most employers will probably choose the route with the least paperwork, that means a total pension contribution of up to 9% of pensionable earnings – and a minimum of 4% must be from the employer and any remaining contribution to be taken from each staff member.
The changes are huge and will become increasingly complex as employers, employees and salaries are rarely static. It is essential you do not underestimate the administrative impact and financial costs of the upcoming changes.
As an employer it is vital that you plan for the changes ahead and you find out your staging dates. Although the rules change this coming October, every employer will be given a date when they will need to ensure they comply with the rules. These staging dates are spread up until 2017.
For employees it is important that you take the new rules into account when considering your own retirement planning and that you know how your employer is planning to embrace the new rules.
If this all sounds a little confusing – call Platinum and we’ll guide you through it!