With the media seemingly awash with stories about how the UK may be facing a pensions crisis and the increased likelihood of individuals experiencing significant and comfort-challenging reductions in their income levels at retirement, the need for professional advice has never been more important.
Most private sector final salary-related schemes are closed to new members and workers outside the public sector are facing an increasing and unwelcome responsibility for taking control of their own retirement planning.
When all these factors are considered against the backdrop of people in the UK living longer and experiencing uncertain economic conditions, it is vital that individuals receive accurate advice and forward plan to make provision for their retirement. This should involve an estimation of the size of fund necessary to generate the income that they foresee will be needed, how much they need to save to reach this goal, but more importantly, the correct structuring of benefits at retirement and the best vehicles and investments to deliver these requirements.
Pensions come in a variety of shapes as might be expected. We specialise in providing professional advice to employers, employees and self-employed professionals to help ensure that wherever possible, retirement does not necessarily mean uncomfortable financial compromises and disappointment.
Since 2012 the government has made it the law that all employers must provide a workplace pension scheme for all eligible employees to help them save for retirement. The roll-out of the staging process means that by April 2018 all employers must have a qualifying workplace pension scheme in place and automatically enrol their eligible employees.
How Does A Workplace Pension Work?
A workplace pension is designed to help employees save for their retirement and provide a lost-cost method of doing so. A portion of their qualifying salary is paid into the scheme every time they get paid, normally monthly but in some cases weekly. As their employer you will also have to contribute and the government contributes also in the form of tax-relief.
The Staging Process
The first step of the process required employers with over 120,000 members of staff to automatically enrol their employees by October 2012.
By March 2013, businesses with 10,000 staff had to enact their workplace pension scheme.
November 2015 was the start of the staging process for employers with less than 30 eligible workers.
By February 2018 all employers, no matter how big, small, old or new must have a pension in place and for their employees and all eligible staff enrolled.
Cost to The Employer
Workplace pension regulations states that until 5th April 2018 the minimum employer contributions is 1%, the same for the employee, making a total of 2%.
From 6th April 2018 until 5th April 2019 the minimum employer contributions will be set at 2% and the employee 3%, a total of 5%.
From 6th April 2019, an employer will have to contribute 3% of a worker’s qualifying earnings and the employee 5%, making a total of 8%.
By now it is likely most employers already have your workplace pension scheme set up. However, it is still important to regularly assess the eligibility of employees and suitability of the scheme.
Employers’ legal obligations do not cease once the scheme has been set up. There is a 3 year cycle of re-enrolment and eligibility assessment. For example, any employees who may have opted out will be automatically enrolled again and the eligibility of employees to be members of the scheme has to be re-assessed.
Employers must complete a declaration of compliance whether they have staff to enrol or not. The declaration of compliance must be completed within 5 months of the pension scheme being in force. Re-enrolment of staff is not optional, as a legal duty it must be complied with or the firm may face a fine. Another declaration of compliance is required at re-enrolment.
Penalties for not complying with workplace pension regulations can be high. The Pensions Regulator can issue a fixed penalty notice of £400 and then hit employers with escalating penalties, the costs of which vary with the size of the firm but can reach £10,000 per day.
Assessing the Suitability of Your Pension Scheme
You may need help assessing the suitability of your current workplace pension scheme to make sure that it is still right for your company. You may need help assessing the eligibility of your employees. You may need help with your statement of compliance.
Therefore, employers should choose advisers who are suitably qualified to give them advice especially as employers are expected to re-assess these factors at regular intervals. For example, the age of your current workforce or contracts of employment may change over time which might have a direct impact on the suitability of the original workplace pension scheme chosen. Further, some workplace pension scheme providers are more efficient than others. If the scheme provider’s administration is poor, it can lead to problems for the employer and employees.
Implementing a workplace pension scheme is only the first step employers needed to take. Businesses need to be mindful that they remain compliant with the law in order to avoid any penalties in the future. Furthermore, it is in their and their employees’ interests to invest in a suitable workplace pension plan. You may need help and advice on making these decisions so it is best to speak to someone who is independent.