Are you ready for the 2012 Pension Reform?

Under the new rules, employers will have to automatically enrol all eligible employees, not already involved in a workplace pension scheme, into their pension scheme or into the new National Employment Savings Trust (NESTs) pension scheme.

The rules have been devised to make sure that more of the UK population makes early preparations for retirement. They are being phased in from 1 October 2012 for various-sized businesses. Initially, the new Government scheme will be 2 per cent of an employee’s qualifying earnings of which an employer pays 1 per cent. This will then rise to a 3 per cent minimum contribution from the employer, a 4 per cent contribution from the employee and a 1 per cent contribution from the Government by October 2017.

The new rules are likely to have an impact on every UK business and the cost of enrolling eligible employees automatically into a qualifying scheme could be substantial. It is fundamental to appreciate how this new legislation will affect a company and the financial impact it may have.

What is the cost to a business?

Costs will vary depending on the amount of eligible employees within the business and what they earn. The earnings of an employee include their basic salary, commission, bonuses and overtime.

The correct pension scheme must be selected. To be a valid ‘qualifying’ scheme, the pension must either be:

1. The Government’s National Employee Savings Trust (NEST).

2. A scheme already in existence, which adheres to the new rules and regulations.

3. A brand new scheme.

Employees can opt-out of an offered scheme within a 30-day period, however every three years they must be automatically re-enrolled and given the choice to opt-out again.

 What is the right pension scheme for a business?

For many businesses, deciding the right option and pension scheme may prove difficult and advice may be beneficial. Different employees have different requirements and many employees may already have their own retirement arrangements.

There are various aims a pension scheme can offer depending on the preferences of the individual business. One business may wish to simply meet their legal obligations, whilst others may wish to offer their employees a pension scheme, which widely surpasses the new requirements.

 It is essential to recognise how these new rules will alter and affect a business. These responsibilities will come at a price and it is important for all businesses to be aware that failure to conform to the new rules could mean endorsed financial penalties. A Fixed Penalty Notice of £400 will initially be issued, and then depending on the size of the business, this could be followed by an Escalating Penalty Notice of up to £10,000 per day, if the initial penalty is left unpaid.

This highlights the importance of early planning and preparation. Please speak to one of our expert advisers at Welbeck Group for further guidance – Welbeck Group can advise clients accordingly, so please call us on 0207 776 2135 or e-mail marketing@welbeckgroup.co.uk.