Mandatory Pension Schemes Are A Burden On Employers Says Kent Financial Adviser
From 2012 all employers, including small businesses, will be compelled to make pension contributions – a bit of financial news that appears to have been overlooked, says Kent financial adviser Simon Ludden.
Simon, financial planning manager at leading regional law firm Furley Page, said: “The Government is acting on the Pension Commission’s Report which told us what we already knew – that most people are not saving for retirement. For those who are, the majority of pension funds are below the level required at retirement, hence the mandatory contributions or soon to be introduced ‘personal accounts’. Employees will be able to opt out.
“The intentions may be worthy but it’s a bitter pill for many employers – particularly those with a high turnover of staff – who will be struggling to come out of recession.”
Individuals over 22 and under state retirement age will automatically be enrolled into the existing work-based pension schemes or if there isn’t one available, personal accounts which Simon describes as “cheap-to-run retirement schemes”.
There will be one scheme for which companies will be invited to tender – in much the same way as the Lottery. Firms running occupational or group schemes will be allowed to retain them – providing the legal minimum contributions are maintained.
Employees outside the stipulated age range will have the option to opt in and receive the same benefits as the other employees.
The target contribution to the scheme will be eight per cent of basic band earnings (of which at least three per cent must be funded by the employer) – made up by an employer’s contribution of three per cent; an employee’s contribution of four per cent plus one per cent tax relief. Earnings on which these contributions apply should start at £5,000 with a maximum of £33,500 (calculated in 2006 and likely to increase).
“On this basis all full-time workers – even those on the minimum wage – will be included,” says Simon. “The bandings should increase annually and employee contribution levels will be phased in over three years but the expected start date is October 2012.”
Simon, financial planning manager at leading regional law firm Furley Page, said: “The Government is acting on the Pension Commission’s Report which told us what we already knew – that most people are not saving for retirement. For those who are, the majority of pension funds are below the level required at retirement, hence the mandatory contributions or soon to be introduced ‘personal accounts’. Employees will be able to opt out.
“The intentions may be worthy but it’s a bitter pill for many employers – particularly those with a high turnover of staff – who will be struggling to come out of recession.”
Individuals over 22 and under state retirement age will automatically be enrolled into the existing work-based pension schemes or if there isn’t one available, personal accounts which Simon describes as “cheap-to-run retirement schemes”.
There will be one scheme for which companies will be invited to tender – in much the same way as the Lottery. Firms running occupational or group schemes will be allowed to retain them – providing the legal minimum contributions are maintained.
Employees outside the stipulated age range will have the option to opt in and receive the same benefits as the other employees.
The target contribution to the scheme will be eight per cent of basic band earnings (of which at least three per cent must be funded by the employer) – made up by an employer’s contribution of three per cent; an employee’s contribution of four per cent plus one per cent tax relief. Earnings on which these contributions apply should start at £5,000 with a maximum of £33,500 (calculated in 2006 and likely to increase).
“On this basis all full-time workers – even those on the minimum wage – will be included,” says Simon. “The bandings should increase annually and employee contribution levels will be phased in over three years but the expected start date is October 2012.”