2012 and the new pensions regime – nice and simple then? | Release Date Oct, 10 2009 | ||||||||||
With the Pension Act 2008 becoming law, we now know that beginning in 2012 all employers, bar those that are one director owner organisations, will be required to provide a Qualifying Workplace Pension Scheme (a QWPS) for their employees. These can either be the new State sponsored Personal Accounts scheme or an alternative plan (e.g. a group personal pension or occupational scheme). | |||||||||||
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With the Pension Act 2008 becoming law,
we now know that beginning in 2012 all employers, bar those that are one director owner
organisations, will be required to provide a Qualifying Workplace Pension
Scheme (a QWPS) for their employees.
These can either be the new State sponsored Personal Accounts scheme or
an alternative plan (e.g. a group personal pension or occupational scheme). Financial impact – it’s not that bad A QWPS will need to match certain criteria,
including required levels of contributions. These will need an overall
contribution of 8% of qualifying earnings, being earnings within a band. The employer will be responsible for 3%
with the employee paying 4% and the other 1% coming from the treasury in the
form of tax relief. The first point to make is that the
funding rate does not directly compare to current funding rates you are
probably making as these are normally based on a percentage of basic pay and
not a band of earnings. The table below
shows the percentages of pay under the new regime. What are 3% of Band Earnings as a
percentage of total earnings?
Hopefully, most organisations will be
less concerned about these levels of input especially when compared to current
funding rates. Don’t forget that
employees must be enrolled immediately on joining service so probation and
waiting periods are out (unless your scheme meets the Quality test which
basically means an employer contribution of 6% rather than 3% and an overall
input rate of 11% rather than 8%). Of course, for those with no funding in
place at present, any compulsory contributions coupled with auto enrolment will
mean an increase in costs but there are strategies to deal with this too. For example, for those employers really
unable to afford additional funding (and let’s face it, it’s hardly the ideal
time to be introducing this), you might consider introducing small, incremental
increases taken from pay settlements to meet the employer’s liability over the
few years. And finally….. Just when this was looking like it was
taking shape, the DWP launched its most recent consultation. Unusually, it has cut the consultation
period short by 6 weeks and it is now proposing to stretch out the
implementation of these requirements over a new three year period with
different sized employers being required to comply with the rules in stages;
biggest first, smallest last.
Also, the phased approach to the build up to 8% is being changed so that
during the staging period all schemes will be required to only pay 1% employer
and 1% employee and then when all employers are covered contributions will
increase to 2%/3%, then 3%/5% starting in 2015. So, it’s a bit more complicated but
less costly than originally planned.
Now employers have an even greater opportunity to plan a gentle glide
path up to the rates required for compliance or review their own arrangements
to ensure they are already there.
Expect the final rules to be in force by early next year. I think Alex Beveridge, outgoing editor-in-chief
of Professional Pensions, sums things up nicely when he says “…. I have seen
and compared pensions "crises" all over the world and, while every
country has its good and bad points, I can say, hand on heart, that the UK is
blessed with the most committed pensions professionals, but is also burdened
with the dumbest and most over complex regulations.” For more information please contact: Richard Stewart Gillian Haworth | |||||||||||