The Government legislation requiring all employers to provide a workplace pension is now largely in place. The final stage of the original plan will unfold between October 2018 and April 2019. This will see the minimum level of contribution rise to 8% of qualifying earnings. This is expected to be split between an employer contribution of 3% and an employee contribution of 4%, with the remaining 1% coming as a tax rebate from HMRC.
This is now a significantly different proposition to that at the start of the roll-out in 2012. Then the required contribution was only 2% (15 each from the employer and the employee) and the sums concerned were small enough that they may not have commanded the appropriate level of attention when deciding on a scheme.
If today an employer had to decide on an outsourcing arrangement for a necessary service that was going to cost a minimum of 8% of total payroll, would they apply a greater degree of due diligence to the decision than they did several years ago?
Furthermore, some of the “off-the-shelf” pension arrangements that have been adopted have subsequently been shown to be poor choices for future pension needs in terms of cost, flexibility and outcomes, and some could even be susceptible to legal challenge from disgruntled employees.
Beacon Wealth Management would be happy to have an informal discussion with any company who feels they would like to review their initial decision on their workplace pension scheme.
Why has Auto Enrolment been enforced?
The Government need to encourage individuals to make provision for their own retirement arrangements. In the past, a combination of generous employer-funded final salary pension schemes and healthy long-term investment returns provided a satisfactory environment within which adequate benefits could be generated.
Following increases in mortality rates, lower returns from Gilts, investment market volatility and reductions in employer contributions – there is a growing realisation that too many individuals will not have enough provision on which to generate a retirement income.
You can currently expect to receive from around £164.35 a week from your State Pension. (To qualify for a full state pension, you must have 35 qualifying years of national insurance contributions.) This will provide approximately £8,546 a year from your state pension age, which has now been raised to 68 for people born after 6th April 1978.
Equating this to a 35-hour week, the state pension pays you £4.70 an hour. The current National Minimum Wage is £8.75 an hour. Relying solely on a state pension which is only about half the minimum wage does not make much sense when trying to plan for a comfortable retirement.
Company pensions are designed to encourage more people to save for their retirement, which is great, but many employers are worried about possibly having rushed into a poor decision when they opted for their current scheme, or simply had no other option available to them at the time.
Beacon Wealth Management Ltd understands these worries and can help to compare other options which might provide improved outcomes for employees.
The first questions many people ask about their workplace pension are:
- Did we choose a decent pension provider?
- Is there a cost-effective way we can make our workplace pension look like more of a benefit to our staff?
- What options do we have to change our scheme?
- Is there a simpler way to administer our payroll and communication obligations?
Whilst it would be lovely to say that one answer fits all, it is not the case, which is probably where a lot of confusion has been created. Beacon Wealth Management Ltd offer a free initial consultation to help you on your journey to provide and maintain a qualifying and affordable scheme that works well for you and your staff, rather than simply meeting the minimum regulatory requirements
Please contact our Employee Benefits Specialist Ian Jenkins on firstname.lastname@example.org
Ask your specialist for advice.
Financial Planning Manager
Tel: 01480 869466