Albert Enstein once said ‘I never think of the future. It comes soon enough.’ About 670,000 employers and 14 million employees in Britain have a similar attitude when it comes to pensions.
It is overwhelmingly small companies which do nothing about pensions. Most offer a group stakeholder scheme, as they are obliged to do. But they make no contributions to it and no effort to encourage their staff to use it. The employees do not complain as a pension would mean sacrificing some pay to make their contributions.
This is all changing. From 2012 larger employers with more than 120,000 staff will be compelled to begin paying into the new National Employment Savings Trust unless they have their own superior scheme up and running. By 2016 small companies will be compelled to pay in too. Employer contributions will start at 1 percent of salaries and gradually increase to 3 percent by 2017. Staff will pay in 4 percent of their salaries and receive an extra 1 percent from the government in tax break.
Naturally the biggest increase in expense and administration will be felt by companies which are currently doing nothing about pensions.
Those same companies feel resentful that they will be obliged in future to help fix the pensions crisis by paying into the NEST, according to research by the Department of Work and Pensions. The administrative costs aroused the most concerns for SMEs, according to the research. The government has admitted employers will collectively pay out £152 million in the first year to set up the scheme and another £98 million annually subsequently to administer their part in it.
The research also revealed that smaller companies were pleased that the changes will be phased in because they were keen to ‘pay as little as possible for as long as possible.’
This is no longer the best approach. Companies will get a warning letter 12 months before they must automatically enrol their staff into the NEST. But it might be a good idea to start planning now for the changes – perhaps by dusting off that stakeholder pension or at least by engaging with the issues.
Peta Fluendy is employment law consultant at Sutton based De Brett and Co
http://www.debrettlaw.co.uk/
employmentlawconsultant@gmx.com
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