Workplace pension reforms haven’t had a lot of attention yet, possibly as the implementation is a while off. However employers need to start budgeting for the costs now.
Once running in full, employers will be obliged to contribute 3% of staff pay to the staff pension scheme – add to this the 1% employers NI rise coming in from April 2011 (subject to political changes), and employers are facing a 4% rise in wage costs over coming years without the employee seeing a penny.
Meanwhile the employees also have a NI rise and a compulsory pension deduction, meaning their take home will go down, meaning pressure on employers for pay rises.
Employers must start to build this into their medium term budgets.
So what are the key elements of workplace pension reforms?
~ Employers to contribute 3% to a designated pension scheme for each employee unless there is already a suitable occupational pension scheme in place
~ Employees to contribute 4% of earnings into the same scheme.
~ A further 1% contribution from the Government
~ Total 8%
~ Earnings for this purpose are amounts between £5,035 and £33,540 (subject to adjustment for inflation in due course
~ Applies to workers over 22 and below state pension age. Workers below 22 and over state pension age can opt into the scheme, and if they do they employer must make contributions for them.
~ A personal pension account which meets certain conditions can be used, or the new “National Employment Savings Trust” (NEST), a state sponsored pension scheme, being run at arms length by the Personal Accounts Delivery Authority.
~ employees can stop their deductions, but employers have to periodically re-enrol them (clearly the hope on the part of the Government is that employees won’t realise this is a ‘voluntary’ deduction) . If an employee stops their contribution, the employer contribution requirement still continues.
~ The compulsory opt in is phased from 1 October 2012, with 1 March 2014 onwards being the earliest start date for smaller employers (less than 50 staff) – see the staging dates on DWP website.
~ From start date to September 2016 the employers contribution will be 1%
~ From October 2016 to September 2017 the employers contribution will be 2%
~ From October 2017 the employers contribution will be 3%
Employee contributions and government contributions via tax relief will be similarly phased – a useful guide is here on the DWP web site
The self employed (sole traders and partnerships) are not effected for their own affairs but, of course, will be affected to the extent they employ staff. Company directors count as employees so even a company with no staff other than a director will have to run the scheme and make contributions unless the directors salary is set below the threshold.