Over the last year or so, there has been an extensive television advertising campaign telling people about workplace pensions, so many people will already be aware that in the next few years, all employers will be required by law to provide a workplace pension scheme for all their employees. This pension reform began in 2012 when the largest employers started such schemes and will continue until virtually every business in the country has a workplace pension scheme in place.
Workplace Pensions Scheme
The workplace pension scheme is also known as automatic enrolment because every employee who is eligible for the scheme will automatically be included. Eligible employees are those who are working in the United Kingdome and are aged between 22 and state retirement age who are earning a minimum of £9,440 per annum. This scheme has been brought in to encourage people to save into a pension for their retirement and to avert the possibility of a pensions crisis where people do not have enough money to live on when they retire.
Employers need to know when their staging date is, this is the date by which they must implement a workplace pension. For those who do not know when their staging date is, they should check with the Pensions Regulator who will be able to tell them. Once the pension comes into play, both employer and employee contribute to the scheme. The employer is responsible for collecting employees contributions and these will generally be deducted by payroll when employees are paid. Business owners who are not already engaged in this new scheme should be making the necessary preparations now and budgeting for the extra costs involved. It is only natural that employers want to find the most cost effective method of implementing the scheme and some may leave it until the last possible moment but this may not be the case.
For instance, a small business employing around 10 people who would normally award an annual pay rise of 1 – 3% and has a staging date of April 2016, could actually benefit by setting up a workplace pension before the staging date if all the employees agree to allow their pay rise percentage to be paid into the scheme. The benefits of doing this include gaining tax benefits as pension contributions are tax deductable, reduce the long term salary budget and keep them ahead of the obligatory staging date. The government also pays into the scheme in the form of tax relief so the overall amount being paid in is more than just the employer/employee contributions.
Sound Advice Needed
It is important that businesses take sound advice before setting up one of these workplace pension schemes because there are so many different schemes available and some charge large fees. At the present moment, MPs are discussing capping the amount of fees management companies can charge, however, it would be prudent to find a scheme that will benefit the employees. People who change jobs take their workplace pensions with them, even if they no longer save into that one and go into another one with their new job, the funds will continue to be invested and will be there for them when they retire.