Auto-Enrolment is here and it’s here to stay.
Auto-Enrolment is here and it’s here to stay.
From the 1st October 2012, the largest single reform of UK workplace pensions begins.
In our opinion the reforms don’t go far enough to ensure that individuals will retire with an adequate income. Yes, it makes a start and it will help those on low to middle income and add to their state pension.
There is a five year staging process for when a company has to have an auto-enrolment scheme in place depending on number of employees and tax code. All companies will be on the same contribution levels by the end of 2018:
3% paid by the employer, 4% from the employee and 1% from the government (tax relief), of pension able income.
The legislation allows individuals to opt out after they have been enrolled but employers cannot discuss this with employees and must re-enrol them back into the scheme every 3 years. The penalties for breaking these rules are severe.
Yes, the reforms do look complex. Fortunately, The Pensions Regulator has provided excellent information to Pension Providers and there are many solutions available which manage the day to day running of a scheme. Compliance should be very easy and we are encouraging company owners to ask their Accountants or The Strand Partnership, about the options.
Unlike overseas, the UK has been heavily dependent on Insurance Companies or a privately run national scheme like NEST for workplace pensions in the past. This extra layer of administration has over-complicated and over-charged individuals for many years. More innovative and independent pension schemes are now available. These offer more choice of how pension money is invested and at far lower costs. This potentially means a better income in retirement.
Whilst there is nothing to say that Auto-Enrolment will become compulsory without an opt-out facility in the future, we believe that this is the natural next step in UK Pension Reform. For this reason alone, we openly encourage companies to support the reforms wholeheartedly. Can you imagine the costs involved if 50% of your workforce who had opted out suddenly had to be enrolled at the levels of everyone else?
