Pensions Announcement thoughts

burg

So yesterday the government announced it will continue with Labours reform plans of pensions. All businesses who have staff over 22 earning more than £7475 a year will have to initially pay in 1% of net salary into a pension fund from 2012 rising to 3% by 2017.

Full story here http://www.dailymail.co.uk/news/article-1324200/Small-firms-pension-outcry-Businesses-forced-fund-new-schemes.html?ito=feeds-newsxml

Not only will this effect the businesses we act for but also ourselves as there is no exemption for small businesses so even if you have one employee you will be included.

Any thoughts?

truecockney

Although, in principal, a worthy idea, this just sounds like a way of trying to "increase retirement income" while taking the pressure of the State Pension pot (of which we all know there isn't technically now).

The contributions will effectively mean a non-negotiable contribution of approximately 15% of staffing costs towards your own employees pension, plus any administration costs of getting this up and running. Will that really encourage employment in the private sector?

I can only see that this will mean that business will either have to reassess their pay structure and reduce pay to help budget for this, or just stop employing (and even make a proportion redundant).

Also, does anyone dealing in the recruitment industry know whether this will also affect temporary workers and who would be liable to this? The recruitment agency (as employer) or the client?

A-Vic

was watching BBC this morning and considering if you earn an average 15,000 PA you will pay £35 per month for an extra £35 per week, but then said all pensions by then will be universal is it worth it? also they advised you take out a personal pension as the extra would not be means tested.

deanshepherd

truecockney wrote: »

The contributions will effectively mean a non-negotiable contribution of approximately 15% of staffing costs towards your own employees pension, plus any administration costs of getting this up and running.

How do you get to costs of 15% from a pension contribution requirement of 1% of earnings above £5,715?

Sounds like a good idea to me.

At a cost of less than 1% of existing staff salaries it can't be a bad thing. I would not begrudge contributing that amount for my staff.

Pension providers will be itching for those contributions so I don't see them charging any set-up costs to the employer.

truecockney

Albeit, not directly, there is the Employer's NI plus this "subsidy" of (eventually) 3% to either a work-based pension scheme or to a Secondary state-agreed scheme.

Of course, this is something that will probably only come out in the wash once the finalisations a final draft has been released.

deanshepherd

There is no employers NI on pension contributions.

Monsoon

Gah. I hate pensions.

That is all.

coojee

I do the accounts for a pre school who make precious little money as it is, well none to be precise as they're a non profit making charity. They've got one employee earning over £7,500 so we'll have to set up a pension fund for her. Lord only knows where we're going to get the money from to set it up and then to pay into it. And how do you go about setting up a pension fund anyway? Are employees still allowed to opt out of it? And if they opt out and there's only one of them does the employer still have to set up the pension fund even though nothing's going into it? So many questions!!!!!!!

deanshepherd

coojee wrote: »

Lord only knows where we're going to get the money from..

Well, the maximum it would cost (if your employee earns anything over £33,540) is £278.35.

The cost for an employee earning £7,500 would be £17.85.

Either way, no big deal surely?

JodieR

I can think of a number of clients who this is going to be a headache for, mostly one in particular who runs a busy take-away. Most of his employees are turkish, they don't speak english. How they've got NI numbers baffles me as most don't even know their date of birth (seriously, many of them are recorded as 1 Jan 1970 as they were born 'in the hills' and their mothers never recorded the date). And they do very irregular hours depending on the season, so there's no knowing whether they'll make over £7500 until the end of the year for many of them. I know for a fact that when I tell the owner that he's got to set up pension plans for them all he'll just refuse and will probably rather end up with penalties and court appearances instead.
I'd rather they just increased employers NI!

coojee

deanshepherd wrote: »

Well, the maximum it would cost (if your employee earns anything over £33,540) is £278.35.

The cost for an employee earning £7,500 would be £17.85.

Either way, no big deal surely?

Well there's the cost of setting it up in the first place, how much does that cost in consultants fees? I've no idea, is it going to be peanuts or is it going to be mega bucks? £17.85 may not sound much (and it isn't) but when you consider that they run at breakeven and have to fund raise to buy the kids presents at Christmas and to buy more paper for them to paint on, then suddenly £17.85 starts to get a bit bigger. They can't go overdrawn, they can't increase their income as it's all funded by the LEA via the nursery grant, so there's no leeway for extra costs. I'm hoping what will happen is that the PLA will sort something out for all pre schools so that we don't have to do it. And at the end of the day is it worth it when only £17.85 plus employee contribution is going into it? What's the pension going to be at the end of all that? Sweet FA I should think by the time the fund's charges have been deducted.

Rozzi Rainbow

I am currently the only employee in our practice and had my (personal) pension review at the bank recently. This topic came up and I was told that my employer can my directly into my existing personal pension scheme to avoid the costs of setting up his own company scheme. This seems to me a great idea for small businesses, but of course relies on the employees already having their own schemes in place.

deanshepherd

coojee wrote: »

Well there's the cost of setting it up in the first place, how much does that cost in consultants fees?

Zero. Why do you need a consultant?

coojee wrote: »

What's the pension going to be at the end of all that? Sweet FA I should think by the time the fund's charges have been deducted.

That's exactly how the pension providers make their money. They won't be charging the employer. They will be begging for the employers custom.

coojee

deanshepherd wrote: »

Zero. Why do you need a consultant?



That's exactly how the pension providers make their money. They won't be charging the employer. They will be begging for the employers custom.

I need a consultant cos I don't have a clue about setting up a pension scheme, it's one thing to start one for myself but when it's for other people I have to be sure it's right so that there's no come back on me. I can't just walk into the nearest bank and pick a scheme off the shelf cos it might be crap.

Yes, the pension provider will make their money by charging fees, but the financial consultant won't make any money like that, he'll want paying in cash, he ain't gonna get much of a bonus off a £17 a year pension is he, so he'll want hard cash.

payrollpro

Hi everyone,

Isn't it such a shame that the press have once again stirred up so much negative feelings towards this.

I am aware that cost of setting it up will be an issue, however the government has confirmed that NEST will remain in place for those who choose to use it. A specialist is generally needed to help the employer find a provider and that costs, it certainly did for stakeholder. It is also critical if the employer wants to avoid complaints about the selection later on, take standard life as an example. However if the employer goes straight to NEST there is no need to take an independent view and NEST's set up fees are minimal.

If you, or your clients don't want to use a financial consultant then go to NEST.

As far as other costs are concerned, remember that if employees want to take their own advice the employer can pay up to £150 towards this, its CT deductible and no BIK for the employee.

The starting contributions are low with the target being a minimum of 8% shared between employer and employee with the employers share being 3% so I don't think its going to break the bank and in any case they have a good period to build up to it in time. Remember also that your clients could consider getting employees to self fund using salary sacrifice and that could mitigate the employers charge.

And Coojee, if you choose NEST your employees cannot come back and complain, that's the whole point of NEST, it is automatically and acceptable choice. But if you go elsewhere you will need evidence that you have tried to make a good choice.

Payrollpro

coojee

payrollpro wrote: »

Hi everyone,

Isn't it such a shame that the press have once again stirred up so much negative feelings towards this.

I am aware that cost of setting it up will be an issue, however the government has confirmed that NEST will remain in place for those who choose to use it. A specialist is generally needed to help the employer find a provider and that costs, it certainly did for stakeholder. It is also critical if the employer wants to avoid complaints about the selection later on, take standard life as an example. However if the employer goes straight to NEST there is no need to take an independent view and NEST's set up fees are minimal.

If you, or your clients don't want to use a financial consultant then go to NEST.

As far as other costs are concerned, remember that if employees want to take their own advice the employer can pay up to £150 towards this, its CT deductible and no BIK for the employee.

The starting contributions are low with the target being a minimum of 8% shared between employer and employee with the employers share being 3% so I don't think its going to break the bank and in any case they have a good period to build up to it in time. Remember also that your clients could consider getting employees to self fund using salary sacrifice and that could mitigate the employers charge.

And Coojee, if you choose NEST your employees cannot come back and complain, that's the whole point of NEST, it is automatically and acceptable choice. But if you go elsewhere you will need evidence that you have tried to make a good choice.

Payrollpro

Thank you, I hadn't heard about NEST so I will investigate that.