Employers are starting to get into gear for the 2012 reforms, by Nicola Sullivan
As the 2012 introduction of the Pensions Act 2008 comes ever closer, employers must consider what impact it will have on their pension plans. The research suggests employers are keen to ensure the reforms do not mean they have to level down their existing pensions provision, with 54% wanting to ensure they maintain employer contributions above the soon-to-be mandatory 3% contribution that will be phased in from 2012.
Some employers may also have to adopt a strategy to cope with any extra contributions they may be required to pay under the reforms. Just under a quarter (22%), for instance, will take advantage of available tax and national insurance (NI) breaks by implementing salary sacrifice arrangements, whereby pension contributions can be paid out of gross pay. Just 8% had considered this as an option in 2008.
Encouragingly, very few employers intend to reduce other benefits to meet the cost of additional pension contributions.
The percentage of respondents that believe 2012’s reforms – which will introduce auto-enrolment, compulsory minimum employer and employee contributions and the national employment savings trust (Nest)) – will solve the pensions crisis has halved year on year. This year, just 5% said they thought they would do so, compared with 10% last year. But although 74% of respondents believe the Pensions Act 2008 is not a solution to the pensions crisis, they do accept it is a start.
Some of the concerns over high charges seem to be well placed, with 66% of employers saying it will put them off offering Nest to staff. Combining the annual management charge (mooted to be about 0.3%) with an additional contribution charge of around 2% will mean Nest’s first members will find the scheme expensive. This may lead employers to offer alternatives, such as a group stakeholder plan, which have a more modest charging structure.
The biggest issue for employers in the run-up to 2012 is auto-enrolment, with a number of respondents appearing keen to get ahead of the game in this area. A third intend to introduce auto-enrolment for all staff well before it becomes compulsory and 28% plan to do so for new joiners, up from 14% and 18% respectively in 2009.
But 11% do not intend to take action to prepare for the reforms until 2012. This is a significant rise on the 4% that said the same last year. A further 35% intend to begin next year. It may be these employers are waiting to see whether the legislation will go ahead in its current form following the change in government. However, 29% have already started to prepare, while 11% will do so in the next six months.
Under its retail distribution review, the Financial Services Authority is to ban commission paid to advisers and employee benefits consultants on contract-based plans (such as group personal pensions, stakeholder or self-invested personal pensions). Instead, employers will pay a fee and/or commission to their consultant or corporate adviser, agreeing up-front how much the investment advice will cost them and how they will pay for it.
A surprisingly large proportion of employers (71%) do not enable their staff to take advantage of the extra tax breaks available on pensions (over and above the tax breaks on contributions). In part, respondents may be preoccupied with other pensions tax issues such as plans to reduce higher-rate tax relief on pensions for high earners. Respondents appear to be waiting to see what action the new government will take on this.
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