Anita Brook is founder of Accounts Assist a growing firm of Chartered Accountants. She’s been advising small business, sole traders and consultants for 12 years.
Despite being two-years down the line, pension reform has come to the fore this month following a statement by the Federation of Small Businesses (FSB). They say that the smallest firms in the UK (10 employees or less) should be exempt due to the complicated nature of these changes – the FSB is currently lobbying government to simplify pensions for micro-companies:
http://www.fsb.org.uk/News.aspx?loc=pressroom&rec=6520.
Whatever happens, the more prepared employers can be for pension reform, the better. Here’s a quick overview of what these changes mean, and how they might affect your business:
Pension reform, the basics:
Initially, only employers with over 30,000 staff will be forced to offer their employees a company pension, with smaller companies brought in-line, in stages until 2016 (2013: 350 employees or more, 2014 – 2016: all other businesses.)
If you already have a qualifying pension scheme, then you don’t have to do anything. If your current scheme is too low, or you don’t have one at all, then you can either put in place the statutory pension, through NEST (National Employment Savings Trust) http://www.nestpensions.org.uk/index.aspx, which has been set up by the government to meet the needs of low to moderate earners, or implement your own scheme (as long as it meets or exceeds the basic criteria of NEST.)
Through NEST employees will be auto-enrolled and can expect their company to contribute a minimum 3% of any earnings between £5,035 and £3,540 into each worker’s fund. Contributions can be made on the full salary amount or band earnings.
In addition to the 3% from employers, employees will also be expected to make a contribution of 4%; the government will add a further 1% to the pot.
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Steps to take now
Budget
There is no harm in budgeting now for these new measures. Consider the cost impact of the compulsory 3% to prevent a nasty financial blow in a few years time. You might also take this opportunity to review employees total remuneration package in order to absorb the extra costs.
Decide which type of pension you want to offer staff
Look at the pros and cons of your own employer pension scheme versus NEST. It may be that combination of the two is the best approach in the first instance, with different staff eligible for different schemes; providing more of an allowance for senior staff, for example.
Pensions help recruitment and retention
Having a pension scheme is not just about meeting the government’s requirements. A good pension scheme, as part of an overall benefits package, can help you win and retain staff. Organisations that provide pensions above the standard laid out by the Government are likely to be a more attractive proposition.
If you already, or intend to, offer a scheme with contribution rates above the statutory minimum then it could be worth applying for a pension quality mark, differentiating your scheme from others. http://www.pensionqualitymark.org.uk.
Administration
Make sure you are ready to deal with the administration. Your payroll and HR systems must be able to cope with any changes. This will be particularly relevant for organisations that intend to run both their own pension scheme and the NEST system.
The pension system in this country has been greatly criticised and like it or not, some sort of reform has to take place. We are all living longer and there isn’t enough cash to go round. With the UK’s smallest businesses being allowed the greatest amount of time to get ready for pension reform, hopefully SMEs won’t suffer too much at the hands of new Government legislation.
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