Employers, 2012 and all that - Part III
So, and to continue the series, here's the third part of what otherwise would have been a massive BeeLine containing all the information we know so far that employers will need to know about the pension changes coming up in 2012. The first two BeeLines in the series (Part I and Part II) appear to have gone down a storm with many of you BeeLiners out there and, hopefully, you'll find this one just as useful. But, before rushing straight into it I suppose, the story so far:
In 2012 all employers in the UK whether they want to or not will become actively involved in the process of getting their employees who are not in a workplace pension scheme auto-enrolled in one. The minimum any employer will get away with will be to check that any existing workplace pension scheme they are running meets the minimum standards set by the legislation and, if so, that every employee who can be in it is in it. Employers without 'Qualifying' workplace pension schemes will either have to get one for their employees to be auto-enrolled into, or auto-enrol their employees into the massive 'Qualifying' scheme that the Government is having built for them to use as a default. This big default scheme is going to be called 'Personal Accounts', for reasons that I've never been too clear about to be honest, but there you are. As well as 'Qualifying' workplace pension schemes there will also be such a thing as a 'Quality' workplace pension scheme too. 'Quality' schemes will still be 'Qualifying' schemes, but slightly different rules and regulations will apply to them. Those rules and regulations, along with others on other aspects of this legislation, haven't been written yet; it's a treat for us that's being saved for later.
Here's the funny bit though; employees who are auto-enrolled into pension schemes don't have to stay in them; they can opt-out straight away if they like. If they stay in they must pay 4% of their banded earnings as a pension contribution and their employers must pay a compulsory pension contribution of 3% of banded earnings into the pension scheme too. From the employer's point of view this is all pretty straightforward; they'll be required to put their employees into a pension scheme and if they stay there they'll be compelled to pay 3% into their pensions.
The story continues...
The type of issues that will probably bother employers when they finally get to hear about all this will almost certainly be things like "so where am I supposed to get the extra 3% pay from then?" or "do I have to pay the extra 3% to people whether they stay auto- enrolled or not?" and stuff like that. Here's what we know so far on that score:
* Although the current Pensions Bill is a bit vague on much of the detail of all this it's looking likely that we'll eventually hear about a so-called 'phasing period' that will allow employers to gradually build up to the full 3% additional salary cost over time. It looks likely to be a three-year phasing period along the lines of 1% in 2012, 2% in 2013 and 3% from 2014 onwards.
* The three-year phasing period will give employers the chance to reconfigure things to conjure up the 3% from somewhere in their businesses. It's envisaged they'll do that in one of three ways:
1) Factor the costs into the price of their goods or services (yeah right!)
2) Get used to taking less profit from their businesses themselves (don't make me laugh!) or,
3) Gradually amend payscales to allow for it (the bookies' favourite, surely?)
* Employees who choose to opt-out will almost certainly lose out on the extra 3% of pay even if their employers want to give it to them. What the Pensions Bill is very clear on is that employers will not be allowed to offer inducements to get employees out of pension schemes and there are penalties in the legislation that will apply if employers do that.
* So why allow people to opt-out once employers have gone through all the palaver of auto-enrolling them if they lose the employer's 3% by leaving the scheme? Well, the Government people who've designed all this have always accepted the fact that pension saving is not suitable for every employee in the UK and that for some saving in a pension could even actually be not just unsuitable, but pointless. That could happen if employees are likely to be in receipt of means- tested handouts in retirement. Such employees might feel that the poor value from the investment of their own 4% will outweigh any benefit they would get from their employer's 3% and it's not therefore worth having.
* Employees who do opt-out will either have done so for good reasons or for no real reason at all; maybe because they just don't want to get involved, or feel they can't afford a 4% pay cut or whatever. Whether they've opted out for good reasons or not employers will still be required to auto-enrol them again into pension schemes at three- yearly intervals.
* Employees who are auto-enrolled for a second or subsequent time will still be allowed to opt-out again. All part of the fun and games of operating pension schemes from 2012 onwards really. Everyone will enjoy it enormously I'm sure.
Well, enough jollity for today I think. The next instalment will cover the new requirements on employers to give information to all their employees on all of this whilst walking through the minefield of not being allowed to give financial advice to them while they're at it. Fascinating stuff that I know you simply can't wait for, but you'll have to I'm afraid; Ms Bruun tells me I've got a pile of things to do today before I set off on my travels again tonight.....
25 November 2008
Department for Work and Pensions - Personal accounts: a new way to save
Department for Work and Pensions - Personal accounts: a new way to save, Regulatory Impact Assessment, updated April 2008.
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.