2012... A Pension Odyssey?
I was not one of those who saw the film ‘2012’ last year but I got the general gist; an apocalyptic extravaganza signifying the end of the world.
You may ask, ‘How is that in any way connected to Financial Services?’
The answer is that, for some employers, 2012 may feel like the end of the world!
The Pensions Act of 2008 seems to have slipped under the radar of many employers. Yet it established a framework which will have huge financial impacts for every employer.
The statute and draft regulations state that employers will have the following legal responsibilities to their staff:
• They will, for the first time, be required to automatically enrol employees into a ‘Qualifying Workplace Pension Scheme’.
• The employer will have to contribute to this scheme. This level of contribution will commence in October 2012 at a level of 1% of a band of ‘Qualifying earnings’. (In today’s money the Qualifying Earnings band is set between £5,035 pa and £33,540 per annum)
• Contributions will rise gradually so that, by 2017, the employer is contributing 3% of each employees salary
The effects of this on employers are enormous. Potentially, an employer with 20 employees with a payroll of £200,000 falling into the band earnings bracket would be facing pension contribution costs in 2012 of £2,000 rising to £6,000 by 2017.
The one choice the employer does have in all this, however, is whether to use the Personal Accounts system to set up a Qualifying Workplace Pension Scheme or whether to use an Independent Financial Advisor to assist with setting up their own ‘Quality Qualifying Workplace Pension Scheme’.
An employer choosing to enrol employees into the basic Personal Accounts system will effectively become a pension manager overnight, being responsible for the enrolment of their employees into the scheme and for filing returns to the relevant government department. Employees will have only a limited number of basic funds in which to invest.
On the other hand, the establishment of a Quality Qualifying Workplace pension scheme offers the following benefits:
• A support mechanism for both employers and employees provided by an Independent Financial Advisor.
• Help in completing returns to The Pensions Regulator supported by the administration function of a large pension provider
• Assistance in enrolling employees and the provision of advice in the workplace
• A wider range of providers and funds available
• The ability to advise on suitable funds based on attitude to risk, asset allocation and historical fund performance.
As you can see, this is a potential minefield for employers. If you would like any guidance or further information regarding the implementation of Personal Accounts, please contact me.
Lee Whiteside, independent financial advisor
(01204 659257 / 07855 369243)