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Is your business ready for…….Compulsory Workplace Pensions?

July 2012

July 27 2012,
by Nick Plumb – (Plumb Financial Services)

Company Pension reform is on the way. If you are an employer, you can’t ignore it.  Nick Plumb of Plumb Financial Services explains why.

The government is set to introduce compulsory workplace pensions from October this year and all employers, from the largest FTSE 100 companies to the smallest firms, will eventually have to provide a workplace pension scheme and will have to make contributions of up to 3% of salary into that pension for all eligible staff.

Initially, smaller businesses with fewer staff need not worry too much, because the new rules will be introduced stages and only larger companies will be forced to offer their workers a company pension scheme in 2012. However, by 2013 any employer with more than 350 employees will be compelled to set up and contribute to a pension scheme for their staff. At some point between 2014 and 2016 that has yet to be confirmed, employers with less than 350 staff will be subjected to the same rules.

To help employers, the government is introducing NEST – the National Employment Savings Trust – which will be a government-led alternative pension scheme for any employer wishing to use it.  However, many financial advisers, myself included, are a little concerned about the viability of NEST and the charging structure, which is estimated to be at least 2% per annum in the initial years, in order to cover the huge set-up costs.

I recommend that any employer who does not currently offer a staff pension scheme, should be thinking seriously about doing so now – not later.

A company pension scheme is not only a highly valued staff benefit that increases loyalty and long service, but it is a very tax efficient way of rewarding staff.  A pension contribution by an employer is a tax deductible expense of the business that reduces taxable profits, which means the business pays less tax.  Unlike a wage payment, a pension contribution also suffers no employer’s or employee’s National Insurance contributions. That means it costs less to pay into a pension for a member of staff than to give the same amount as a wage payment.

A pension scheme can also say a lot about your company to prospective employees. Companies that already provide pension schemes above the compulsory standard to be introduced by the Government are likely to be a much more attractive proposition for new employees looking for a job.

A Group Stakeholder Pension Plan or a Group Personal Pension Plan is easy for any good Independent Financial Adviser to set up for your business and collecting contributions from payroll is a simple administration task for you.

These schemes typically will have charges of 1% or less, which makes them very economical for the members, and potentially better value than the proposed NEST scheme. So, starting a company pension may not be the burden you thought it would be.

Preparing for the forthcoming reforms now, rather than when forced to do so has got to be the best way forward for all businesses.  If you introduce your company pension scheme now, you can phase the inclusion of different levels of staff and management into the scheme over different periods of time at your own pace in line with the needs of your business.  That’s got to be better for you and your business than leaving it until the last minute, and then having to introduce the scheme to all staff at the same time because you are forced to do so by the government.

For Directors, a Small Self Administered Scheme (SSAS) or a Self-Invested Personal Pension (SIPP) is another way to save for retirement. With these schemes you can choose the funds and investments you want to hold in your pension and you can even shelter assets such as a commercial property in your SIPP, so that rental income for that property is received free of tax. 

Whatever your pension needs, Plumb Financial Services can help you make the right choices for your business.  Contact us on 01473 830 301 or by e-mail at plumbfs@aol.com.

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