WHILE not exciting to the masses, pensions are vitally important; not just to the employees who benefit from them but also to the employers who offer them.
Companies constantly benchmark their salaries with one another and a good benefits package and pension can be the deciding factor when a job candidate is considering their options. But what is changing?
Auto-enrolment, the system whereby employees are automatically enrolled into a company pension scheme, kicked off last year. This is the first step towards changing our country’s savings culture and it has serious ramifications for businesses. It’s been compared to the smoking ban in that the government is trying to change society’s habits through legislation, and this couldn’t be truer. In fact, thanks to legislation such as the smoking ban and medical advances, we’re all expected to live longer and, naturally, we’ll need more money to support us in our old age.
The Pensions Regulator is very specific as to the definition of what will count as a qualifying scheme and it’s vital that employers make sure this is what they offer. There are heavy fines for failing to provide a qualifying scheme; being late with payments or encouraging employees not to join a scheme. Furthermore, directors and partners can be jailed if they wilfully ignore their pension duties.
There’s a whole host of complex requirements that need to be met to ensure you provide the right scheme for your employees. Not only do you have to provide a qualifying scheme (offering auto-enrolment and a suitable default fund among other factors), but you have to be sure the scheme meets certain quality requirements relating to, amongst other things, contribution levels. You also have to be able to clearly identify and document who needs to be auto-enrolled, who opted out and what the contributions should be. Even things that seem simple, such as defining your workforce, can be complicated.
The National Employees Savings Trust (NEST) has been set up to provide an occupational pension scheme which can be used by employers as their qualifying scheme. It has an annual contribution limit of £4,000, the investment selection is limited and it does not offer a full range of retirement options. The Department for Work and Pensions informs firms of their staging date. You can choose NEST and give up control of the way your pension is set up and run, and also lose a differentiating factor between you and competitors. Or you can review your existing scheme – is it as competitive as it used to be?
With so much complexity, you need sound and reliable financial advice to ensure you provide the best future for your employees.
• Scott Mackintosh is a director at Edinburgh Investment Consultants
