Are you ready for the new pension scheme changes?

Are you ready for the new pension scheme changes?

From 2012 employers with one worker or more will be required by law to enrol all of their employees into a workplace pension scheme AND make an employer contribution towards that scheme. 

Gareth Tregidon While the scheme will be phased in over a period of 4 years, with smaller firms starting in 2014, all employers need to be aware of the potential impact on their businesses and their cashflow.

The new pension scheme is known as the National Employment Savings Trust, or NEST for short.  “This will be the biggest change to the corporate pension schemes, and one of the biggest challenges to employers, that I have seen in over 20 years of working and advising clients on financial planning” explains Gareth Tregidon, head of our Financial Planning team.

This will be the first time in the UK that employers will be compelled to contribute to a pension scheme for their workers.   All employees aged between 22 and below State Pension age, and earning more than £7,475 per annum, will be automatically enrolled into the NEST scheme, with workers aged 16-22 able to opt-in if they wish.  In simple terms, if an employee joins then their employer has to pay!

The date that you will automatically become a member of NEST will depend on the number of employees and your PAYE number.  The largest employers will be staged in first, followed by medium then smaller firms.  You can find a full list of the NEST pension change starting dates here.

So how do you choose a pension scheme to replace NEST?

If you don’t want to be forced into the scheme (as you’d rather retain control over your pensions yourself) you will need to have a scheme in place that meets certain criteria. The options available to an employer when choosing their scheme are:

  •      use an existing pension scheme if it qualifies;
  •      amend an existing scheme to meet the qualifying criteria
  •      set up a new pension scheme which meets the qualifying criteria; and/or
  •      use NEST for some or all of their staff

An employer can use a combination of these options if they wish.  For example, a firm can use NEST for lower paid employees or those that tend to move job more often, and a separate scheme for others.

How much will employers have to contribute?

  • The level of contributions will be gradually increased throughout the staging period:
  • From October 2012 to September 2016 the total contributions from the employer and jobholder will be 2 per cent, with the employer paying a minimum of 1 per cent.
  • From October 2016 to September 2017 the total contributions from the employer and jobholder will be 5 per cent, with the employer paying a minimum of 2 per cent.

 

From October 2017 total contributions from the employer and jobholder will be 8 per cent, with the employer paying a minimum of 3 per cent.

By 2017 approximately 1 per cent of the jobholder’s contributions will be from tax relief.

Of course the contribution level is just a minimum.  Employers or employees will be able to contribute more if they wish.   Even if you already have a scheme that meets or exceeds the 2017 levels you still need to make sure your employees know what’s happening.  We expect the Government to advertise widely once NEST starts, so what better way to pre-empt questions from your staff than to tell them about it in advance. 

If you would like to discuss the potential implications of the introduction of the NEST on your business please call Gareth on 01792 410100 or email him on retirement@bevanbuckland.co.uk. 

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