How to protect the old from poverty has challenged governments since they decided that Victorian workhouses were not the answer. First came the Old Age Pensions Act of 1908, since then successive governments have enhanced the basic pension, added earnings-related elements and lowered qualifying ages – socially admirable but increasingly unaffordable. The arrival of ‘stakeholder’ pensions in 2001 ended any pretence that the State Pension could provide a realistic retirement income. This year sees the next step in pensions reform, requiring virtually every employer to offer, and contribute to, employee pensions.
From October, starting with major organisations, most employees aged over 22 must be enrolled automatically into a ‘qualifying pension scheme’; individuals can opt out, employers can’t. Companies with no qualifying scheme must take action, failing which they will have to enrol employees into the government-sponsored National Employment Savings Trust (NEST). It is in the employer’s direct interest to examine the alternatives because they will from September 2017 be making a minimum 3% contribution and it is questionable whether NEST will be the perfect choice for them and their employees.
Not one for the back burner
Some smaller employers may think they can leave auto-enrolment on the back burner, because they have heard it is coming in gradually or think that accepting the default arrangement – NEST – will make things easier. That may not be so and it would not be in employers’ or employees’ interests to ignore other options such as a group personal pension scheme. It has been decreed that NEST administration must not be complex, so limited investment fund choice is envisaged – yet there will be a 1.8% levy on each contribution until NEST’s start-up costs have been recovered.
The danger of deferring action on auto-enrolment is that a last-minute decision will not produce the best outcome. Thus, employers of all sizes must start preparing for auto-enrolment now, as companies with 3,000-plus employees will be drawn in during July 2013. There is no let-out even for those with fewer than 50 on the payroll, although the Government has recently announced a delay to implementation for smaller employers, due to the economic climate. So, how best to progress things? Take specialist professional advice as soon as possible, allowing time to put the optimum solution in place. Among the first things to check with advisers is the actual staging date by which registration with the Pensions Regulator and full implementation of auto-enrolment must by law be completed by your business.