Pioneering the future of pensions
A new, Government-backed scheme will soon oblige all businesses to enrol their employees in workplace pension schemes, as Mike Jenkins explains.
A big event in the UK in 2012 will have a direct and lasting effect on almost all of us. I refer not to the London Olympics, but to the introduction of a new, Government-backed national workplace pension scheme.
Pensions may not seem very exciting when compared with world-class athletes — or, indeed, with almost anything else! — but the new scheme deserves attention because it marks the first time that all employers will be required to pay into a pension for their workers and the first time that all employees will automatically be opted-in.
At first glance this might sound like yet another burden to businesses already weighed-down by the pressures of recession, but the scheme (to be known as Nest, an abbreviation for National Employment Savings Trust) will be phased-in over five years, starting with the largest businesses in October 2012 and reaching the smallest firms by 2017.
Nest is specifically designed to meet the needs of people who are new to pension saving, with the intention of defusing a time bomb that has been ticking away underneath the British economy for so long — millions of Britons are saving too little for their retirement.
To put this problem into perspective, in today’s money an individual can expect an average of just £5078 per year from the Government in a state pension if they have paid in enough over the years in National Insurance contributions. To maintain an annual income of £20 000 over an estimated 20 years of retirement, the average individual needs to save £312,380.
This amount might seem impossibly large, but the earlier a pension fund is started, the longer it has to build — and the hard truth is that many people delay starting their pension payments for too long or do not get around to making any payments at all. Nest should stop millions of people from falling into this trap by automatically enrolling all employees aged over 22 earning more than £5720 per year, a figure that will rise slightly year-by-year.
Individuals will be allowed to opt out of the scheme, but most are expected to stay in because, if they do, their employers will also contribute to their retirement fund. Nest requires employers to contribute a sum equivalent to 1% of the employee’s pay in the three years from 2012, rising to 2% for another year, then 3% after that. The total contribution from both employee and employer must equate to 8%.
Research from the Association of Consulting Actuaries (ACA) has revealed that 75% of employers support the new auto-enrolment scheme, but 70% also felt that it seemed complex. It is important to know that there are alternatives for building-services businesses, such as Welplan’s industry-wide occupational scheme. Welplan, a subsidiary of the HVCA, has 20 years’ experience of the pensions market and how it affects our industry. Welplan Pensions are designed for maximum flexibility, so that member companies can contribute as little or as much as they deem appropriate (remembering, of course, the minimum amounts soon to be set by Nest).
Welplan Pensions is also the chosen employer contributory pension scheme for the H&V Operative Wage Agreement. When the HVCA and trade union Unite negotiated the second-phase of the 2-year agreement, which came into effect last October, all operatives employed under the agreement gained the right to participate in an employer’s contributory pension scheme. This development was widely applauded as pioneering, but where the HVCA and Unite have led, the whole country will soon follow, so now is the time for your business to do some forward thinking of its own to ensure it has the right pension scheme.
Mike Jenkins is group co-ordinator of HVCA Business Plus and business development manager of Welplan.
