Pensions – Auto Enrolment – What you need to know (and do) by Angus Willson

Angus Willson, Independent Financial Advisor at Ridgeway Financial Partnership, gives us a great overview of how 2012 Auto Enrolment Pension works.

People don’t usually greet the topic of pensions with much excitement. Despite this, the need to save for the future competes heavily with desire to have fun now, as well as other priorities such as housing and living costs. However, due to Auto Enrolment, pensions will become relevant for far more people.

What began in 2012 with the larger employers (e.g. ASDA, Tesco) will now affect all businesses. The rule states that from October 2012 all employers (even those with only one employee) will have a legal duty to offer and enrol their employees into a workplace pension scheme.

The difference to previous schemes is that both the employer and the employee will need to contribute.

In essence the Government has decided that people need to be encouraged to save. The hope is that by having employers and employees contribute to a pension scheme it will act as an incentive to supplement their state pension of £7488 per annum, which is enough to live on.

Why is it happening?
We’re all living too long. People in the UK today live longer than ever before; for males born in 1950 the life expectancy is 66, and for a male born in 2013 it is now 78. 

It predicted that by 2050 the number of people retired will rise by more than a third.

Number of Working Age People for every Pensioner

Pension reform aims to help people to save for their retirement so they don’t have to rely only on the State Pension, which will be a flat rate £144 per week from April 2016 in today’s money.

How much has to be paid in?

The contribution levels are being phased in to help employers manage their cash flow. By October 2018 the minimum contributions will be 8% in total (3% from the employer, 4% from the employee and 1% from the government).

What employers need to do 

•    Identify their starting (or ‘staging’) date
•    Review any existing pension scheme
•    Assess their workforce 
•    Choose a pension scheme
•    Communicate changes to employees
•    Automatically enrol employees into scheme and run it
•    Review workforce eligibility on a rolling basis

What if employers don’t comply?

The Pensions Regulator (TPR) will write to all employers 12 months before their staging date. They will follow this up 3 months before they are due to stage. The employer has to register the scheme within 4 months of the staging date with the TPR. Penalties include heavy fines and potentially prison! 

What pension scheme should employers choose?

You can select a scheme from many different insurance companies or use the government backed scheme called NEST (National Employment Savings Trust). Or you can use your existing pension scheme, so long as it meets the qualifying criteria. 

Where do you go for information?

•    You can speak with your existing pension provider if you have one.

•    The Pensions regulator website has lots of useful information http://www.thepensionsregulator.gov.uk

•    You can look at the NEST website http://www.nestpensions.org.uk

•    You can speak to an Independent Financial Advisor who can help you understand the rules, carry out an assessment of your company, look at your current scheme and talk you through your options and obligations. Most advisors will not charge for the first consultation.

At Ridgeway Financial Partnership we are offering a free 8 page initial assessment which will tell you all about auto enrolment, your staging date and give you a timeline for planning to meet your obligations. This can be emailed to you. To produce the report all we require is:

1.    Name of your company 
2.    Number of employees
3.    Number of employees in your PAYE scheme
4.    Last 2 digits of your PAYE reference (if under 30 employees)

If you would like your personalised copy please email angus@ridgewaymoney.co.uk or go to the ‘contact us’ page on our website www.ridgewaymoney.co.uk

If you want to contribute to the Chamber blog, contact us on hannah@brightonchamber.co.uk