Thoughts On The New Compulsory Uk Employer Pension
Forthcoming changes to workplace pensions aim to ensure that more people have adequate pension provision - but Grimsby Chartered Financial Planner Paul Duckworth, who specialises in retirement planning, believes that, in its present form, the legislation will bring problems for small and medium-sized businesses:
In October 2012, a new workplace pension will be launched.This will eventually require every employer either to have a qualifying scheme in place or to enrol employees in the National Employment Savings Trust (NEST). NEST is NOT a new service or product. It is a UK Governement initiative and will be compulsory for all employers unless they have a suitable scheme in place to allow them to opt out.
The scheme will be phased in - beginning with those who employ 120,000 or more - and by 2016 every company will have to comply with the legislation. Contributions, too, will be phased with the eventual target being for employers to contribute 3% and the employee 4%. Tax relief of 1% will also be added to the fund. The Government's aim is to encourage more people to have adequate and well-protected pension savings - but Paul Duckworth wonders whether the idea has been fully thought through. "The government has made some amendments to the original proposals, which I believe would have been unworkable but I can still envisage huge problems," he said. "It's a laudable aim because most people haven't got nearly enough pension contributions to fund their retirement. However, I can see it being a nightmare for small to medium sized businesses who have no HR department to run the scheme. "Then there are the employees. No thought appears to have been given to seasonal workers for instance or people who go from job to job for whatever reason. They are going to have little bits of money here and there. "It could end up with five million people in the scheme contributing as little as £1 a week. The administration is going to be overwhelming. "Most firms of any size, or those with highly paid employees, will have their own scheme but this could really hit the smaller organisation." Another problem arises with contributions - unlike most pension contributions that are paid as a percentage of basic salary, this scheme would be a percentage of total earnings. "Under the amended scheme, every employee earning over £7475 per annum must be enrolled," Mr Duckworth explained. " So what happens if one week he or she works overtime and earns more than the limit and the next earns less? Again, a nightmare to administrate." His advice to small or medium sized businesses is to put in place their own scheme that they can set up and control. "That way, they can pay a percentage of the basic salary, provided it is on a par with NEST, which makes it much more straightforward," he said.
"The recent changes to the legislation have certainly made the scheme more user-friendly but I still believe it's flawed, especially in the case of small firms who will also have huge problems ensuring they get the credits they are entitled to. "Having said all that, a vast number of people are under-funded for their retirement and it has been proved worldwide that automatic enrolment is the best way to remedy this. "I think the government is on the right track but there is still a lot to do."
In October 2012, a new workplace pension will be launched.This will eventually require every employer either to have a qualifying scheme in place or to enrol employees in the National Employment Savings Trust (NEST). NEST is NOT a new service or product. It is a UK Governement initiative and will be compulsory for all employers unless they have a suitable scheme in place to allow them to opt out.
The scheme will be phased in - beginning with those who employ 120,000 or more - and by 2016 every company will have to comply with the legislation. Contributions, too, will be phased with the eventual target being for employers to contribute 3% and the employee 4%. Tax relief of 1% will also be added to the fund. The Government's aim is to encourage more people to have adequate and well-protected pension savings - but Paul Duckworth wonders whether the idea has been fully thought through. "The government has made some amendments to the original proposals, which I believe would have been unworkable but I can still envisage huge problems," he said. "It's a laudable aim because most people haven't got nearly enough pension contributions to fund their retirement. However, I can see it being a nightmare for small to medium sized businesses who have no HR department to run the scheme. "Then there are the employees. No thought appears to have been given to seasonal workers for instance or people who go from job to job for whatever reason. They are going to have little bits of money here and there. "It could end up with five million people in the scheme contributing as little as £1 a week. The administration is going to be overwhelming. "Most firms of any size, or those with highly paid employees, will have their own scheme but this could really hit the smaller organisation." Another problem arises with contributions - unlike most pension contributions that are paid as a percentage of basic salary, this scheme would be a percentage of total earnings. "Under the amended scheme, every employee earning over £7475 per annum must be enrolled," Mr Duckworth explained. " So what happens if one week he or she works overtime and earns more than the limit and the next earns less? Again, a nightmare to administrate." His advice to small or medium sized businesses is to put in place their own scheme that they can set up and control. "That way, they can pay a percentage of the basic salary, provided it is on a par with NEST, which makes it much more straightforward," he said.
"The recent changes to the legislation have certainly made the scheme more user-friendly but I still believe it's flawed, especially in the case of small firms who will also have huge problems ensuring they get the credits they are entitled to. "Having said all that, a vast number of people are under-funded for their retirement and it has been proved worldwide that automatic enrolment is the best way to remedy this. "I think the government is on the right track but there is still a lot to do."
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