Private sector pension reform – did you know?
The headlines today are full of the public sector strikes. The main reason for these strikes is pensions: in a nutshell, the government is forcing them to pay higher pension contributions for a lower return. Understandably, they aren’t happy about it. The strikes are controversial, but what a lot of people working in the private sector may not realise is that they too will be affected by this.
That’s right – the government is forcing everyone to pay into a pension scheme, whether they like it or not.
From 2012-2016, the government is phasing in pension reform. Every employer will have to operate a company pension scheme if they have empoyees who earn over the personal allowance for tax per year (£7475 for 2011-12). Employees will have to contribute to the pension scheme. Employers will also have to contribute to the scheme. Some small employers may have to consider pay cuts or freeze pay rises for staff in order to afford it. This will impact most people.
There has been some talk about it but, so far, it’s not been widely publicised and many employers and employees aren’t aware of it, or how it might affect them.
Employees:
If you earn over the personal alowance, you will have to make pension contributions via payroll if you don’t already contribute to a company scheme.
You will receive tax relief at source: the pension contribution will be take out of your pre-tax pay. So, if you earn £250 a week and pay £10 into a pension, your tax and NI will be calculated on £240 a week.
Employers:
If you already have a pension scheme then, as long as it meets the prescribed standards (which it probably will), you shouldn’t have to worry.
If you don’t have a pension scheme, the default scheme to enrol in is called NEST. If you don’t shop around and choose your own pension scheme, this is what you will end up with. The financial advisers we have spoken with have all expressed concerns of how good this offering will be, but it will meet the government’s requirements – which is to help fill in the “pensions black hole.”
The other option is to consider the needs of your business and staff, and talk to a financial advisor about setting up a scheme that is more appropriate for your business and may give better value and returns in the future.
Pension reform: the facts
The government are phasing in the compulsory pension schemes depending on the size of the employer. Pension schemes will have to be offered as follows:
2012: employers with over 30,000 staff
2013: employers with more than 350 staff
2014-2016: everyone else
Employees will be “auto-enrolled” onto these schemes.
The employer’s contribution is a compulsory 3%.
The employee’s contribution is 4%.
If you are an employer paying someone over the personal allowance, this affects you. Speak to us today about what your options are.
