Employers need to install pension models that are fit for purpose
Scientists reckon the first person who will live to 150 has already been born. Currently, on average, a man lives to 86 and a woman to 88 if they make age 65.
While this claim reflects well on the advancements in medicine and healthcare generally, the implications for pension providers of all types are so vast the current debate about a retirement age of 67 would, perhaps, be better off focusing on 127 instead!
Food for thought, not least for business leaders who currently have government pension reforms looming large over their balance sheets.
On October 1 2012, employers and their employees got their first taste of Auto Enrolment. Auto Enrolment is the government’s new scheme designed to address the sizeable problem created by seven million people who are not saving enough to generate the pension income they are likely to want, or expect, in retirement.
Not surprisingly, the reforms mean extra costs for businesses in the shape of administrative fees to manage automatic enrolment and increases in the pension contributions a business is compelled to make on behalf of their employees. It quickly adds up.
Ian Poysden, Managing Director of IEP Financial, said: “The biggest problem occurring is the fact that many employers have not accurately assessed all the associated costs, but misguidedly think that they have. Plus, they lack the knowledge to accurately adjust how to make contributions at the right level.
“Considering Auto Enrollment represents one of the biggest sea changes in pension history you’d be forgiven for thinking businesses would be better prepared.”
The scheme is currently being phased in, starting with larger companies, and around 6,455 employers have until March this year to comply with Auto Enrolment. Between April 2014 and April 2015, this will rise to 29,750 employers and to 1,022,695 between June 2015 and April 2017. By 2017 the minimum employer contribution across the board will be 3% of each employee’s qualifying earnings. Their own contributions and tax relief will be added to this to create a total 8% contribution rate.
Ian added: “Whilst there are many companies that already provide a pension to their staff as part of their overall remuneration package, there are few that meet the above mandatory contributions under Auto Enrolment.
“Up to 6 months before a company is due to comply with Auto Enrolment, they should be thinking about how auto enrolment can be integrated with payroll. This is one of the most important areas employers need to consider.
“In terms of choosing an Auto Enrolment system, there are now dozens of pension, payroll and middleware providers that can deliver some, or all, of the employer duties in a software package. An advisor will be able to do this research for you and help employers to decide the best package for their business.”
If a company does not comply with auto enrolment by their deadline, then The Pensions Regulator will have the power to issue a fixed penalty of £400 initially, as well as an escalating daily penalty. This ranges from £50 for small firms who employ less than 4 people, to £10,000 for firms who employ more than 500 people.
Ian said: “This is much more than just a bean counting exercise, employers have to get their internal communications right, their appreciation of the small print in the regulations and ensure they have a pensions model in place that is fit for purpose.”
For more information on Auto Enrolment phone IEP Financial on 01273 208813 or visit www.iepfinancial.co.uk
IEP Financial Limited are Authorised and Regulated by the Financial Conduct Authority (FCA)