6 Things you need to know about the changes in pension law

New rules coming in next year will impact every employer.  Whilst talking with and helping employers there are a number of questions which continue to be asked....so I thought it might be helpful to highlight five of the main points here....

1.   Will the changes in rules impact me and my business?

The simple answer is, if you employ, yes!  However if you are a sole trader or a single director of a limited company (with you as the sole director) it won’t.  Whilst the extent of how the changes in rules impact you depend on a number of factors, if you employ there is some value in finding out how it will by seeking professional advice.

 2.  When do the changes in rules start to impact employers?

The new rules start to impact employers in October 2012.  However at this stage it’s the big companies who are affected first.  The new rules start to impact SME businesses in 2014.  However, many of the companies we work with are starting to prepare sooner to ensure that they fully understand and their businesses are prepared for their rules sooner that this.

3.  If I employ, how will the new rules impact me?

The changes in rules will effectively mean that most employers (excluding those where all employees earn less than a specified limit) will have to offer their employees a contribution into a pension, with the employee also being asked to contribute.

Whilst your staff can “opt out” they will be automatically be opted back in every 3 years.  However employers do not have the option to “opt out” of the scheme.

The minimum contributions going into the scheme from both employer and employee will increase gradually.  However after October 2017 onwards the minimum contribution is 3% employer and 4% employee (with 1% tax relief).

4.  What options do I have in selecting a pension?

There has been a government sanctioned scheme (called NEST) set up which employers can use to meet these new regulations.

However, employers do have the option to select their own scheme from reputable pension providers on the market as long as their own scheme meets certain minimum standards.

5.  Is it going to happen.....really?

The new rules are law today!!  The basis of the new rules was confirmed in law by the Pensions Act 2008 under the Labour government.  Whilst there was a degree of speculation about whether the Conservative government would continue to enforce these rules there is no sign that these rules will be repealed.

Also, the new rules remove the liability the government has and ensures the responsibility to save for retirement is in the hands of both employers and employees.  Therefore in times of austerity it’s logical that the government wants to pass this liability on!!

6.  What do I do now?

This article is designed to provide you with some of the main points you need to consider when preparing your business for the changes in rules.  For more depth you should consult an independent financial adviser who can help further, or alternatively there are a number of web based resources which will provide additional information.

The ostrich, premeditated thought and why you should be more like a chimp

Let’s start this blog entry with a couple of animal stories


The Ostrich

There is no scientific evidence that Ostriches react to danger by burying their heads in the sand. Whilst they are do briefly stick their heads in the sand to swallow sand and pebbles...they react to danger in a far more practical way.....they run!!

The Chimp

In 2009, Santino, a Chimp in Furuvik Zoo in Sweeden was able to collect stones and “stockpile” them away for future use. The reason Santino was doing this was because he wanted to ensure he had enough missiles to throw at the visitors when they came to see him!

The interesting thing about this story is that scientists believe that this shows that Santino possessed a skill considered by many as a uniquely human quality....Collecting these stones now so that he could throw them at visitors in the future was an illustration to many that Santino had “shown evidence of premeditated thought.” In other words...the ability to plan for the future!!

The Point

So, you may be thinking....”why is an independent financial adviser starting his latest blog entry with a couple of stories about Ostriches and Chimps? “

Stick with me....there is a reason!!

Although Santino has shown that the other animals have the capacity to plan for the future, making plans is still one attribute which makes humans relatively unique to the rest of the animal kingdom. The ostrich, although we now know do not put their heads in the sand when in danger are not particularly well known for their forward planning skills!!

However, sometimes I’m surprised that there are a few fellow business owners who, when it comes to planning for the future of their business behave more like the ostrich than the chimp, specifically by not planning for the upcoming changes in pension rules which are going to impact every employer.

These rules were bought into being by the “excitingly titled” Pensions act 2008 and effectively mean that if you employ, it’s likely that both you and your employees will be paying into some form of pension within the next few years.

Although there are some exemptions, the specific rules on the changes are too detailed to go into on this blog...if you want the key facts on the upcoming changes they can be found on our factsheet here:-
So, let’s end with a question....have you already ensured your business is ready for these upcoming changes or have you decided just to run away from danger?

In other words....are you a chimp? Or an Ostrich?

Do you think it's right to turn down business?

Whilst I enjoy the technical side of the job I do for clients, the area of my work I really enjoy is the people side....building a relationship with a client, understanding them as an individual and gaining enough information from the client to do a great job.

I was referred a new client this week and we had a really enjoyable client meeting. Now, I know what you’re thinking.....surely an enjoyable meeting with an Independent Financial Adviser is a bit of a contradiction!! However we had a really good chat about what he aims to achieve financially in the future, what’s important to him as an individual, as well as discussing subjects as diverse as his favourite coastal resort, the implications of the recent riots and favourite sandwich fillings!

When I meet with prospective clients, one of the important factors is whether we both believe we will able to work together. I like to think that I get on with most people and this occurrence is pretty rare, however In the past at the end of either the first or second meeting I have decided that I don’t see the relationship with the client working longer term and have decided we couldn’t work together.

Now, I’ve mentioned this during the past in meetings with other businesses and I received a shocked look!! “Chris, are you mad?? Why would you turn down business just because you don’t get on with the client??” was one of the comments I received.

However, I’m sticking to my guns on this one, and here are the reasons why....

Firstly, life’s too short!! I spend a lot of my waking hours working and I’d prefer to be enjoying this time working with individuals or businesses I have a good relationship with rather than working with clients where I don’t enjoy spending time with them.

Secondly, due to the fact that my promise to my clients is to review their financial provisions and plans on a regular basis...I need to ensure that the foundation of a long term relationship is built from day one. I’m not sure that you can build this relationship if you feel you can’t get on in the initial couple of meetings.

And lastly, if I’m feeling that the relationship isn’t working....surely the prospective client feels the same way?

However, I’m prepared to be proven wrong on this one.....what do you think?

Sweets, Swimming and Inflation

I don’t know about you, but whilst I use the weekends to catch up on a bit of work....the majority of the weekend is family time. This weekend involved a trip to the swimming pool and an interesting comment from my daughter Charlotte whilst we were getting changed after our swim.

I’d asked Charlotte to get the clothes out of the locker....and she was shocked to find she didn’t get the 20p we’d deposited into the locker back!! However, after giving it some thought, she turned round to me and said....”Don’t worry Daddy.....what can you buy with 20p anyway!!”

My initial thought was “how times have changed!!” I remember at Charlotte’s age going into my Local corner shop and being able to get a bag of sweets for 20p, buying some sweets at half a penny too!

Interestingly, According to a recent study by Santander, the cost of sweets has gone up by 24% between June 2008 and June 2011. Now dependent on your opinion, this could be perceived as a positive move, encouraging moving children away from sugary foods. However, the cost of all goods and services increase....this is called inflation and why you should always ensure that you take this into account when saving for a specific goal...consider this, If a basket of shopping would have cost £100 in 1986, the same basket would cost £228.53 today. (source – Bank of England inflation calculator).

Due to this increase in prices of the goods you want to buy in the future, and therefore it’s worth considering if your money is keeping its value...so when you want to spend it, you’ve got enough money for something a bit more luxurious than a bag of sweets or a locker in the swimming pool!

New year, Wonga, the spiral of debt and the credit crutch.

One of my new years resolutions is to be a bit more regular with my blog entries. However, I'm not a big fan of new years resolutions (I always feel
that any promises made to oneself on January the 1st tend to get broken by January the 4th!!), but this is one I fully intend sticking to.

However, I wanted to keep the theme of this entry new year related....in particular the sponsorship of London's public transport for new years eve by the payday loans company Wonga.

Firstly, let me say that I love the idea of free travel on New years eve. I also appreciate the fact that Wonga is a commercial and legitimate enterprise who have the right to advertise wherever and sponsor whatever they decide.

However, I still feel uneasy about this particular partnership and especially at this time of the year....let me explain to you why.

Firstly, at this time of year I'm sure there are plenty of people who have overextended themselves financially over the Christmas period and are looking for a way to ensure that they are in a position where they are able to have spare cash during this time. Wonga might seem like an ideal solution for many, however when you look at the cost of one of these loans, it has the potential to drop someone into a spiral of debt it may be tough to escape .
Although this option may seem like an ideal superficial short term fix, the implications could be long lasting and mean that the individual continues to remain dependent on this source of credit.

Which brings me on to my second point. Whilst loans of this type may solve short term cash-flow issues, they can also be used as a crutch for many which then Individuals and families become dependent on over the longer term. It would be interesting to see how many of wonga's customers are regular users of their service... and wouldn't be entirely surprised if a high level of payday loan firms business comes from repeat custom.

So, what are the solutions to the issue of the "spiral of debt" and the "credit crutch". Like many of this issues, part of the solution comes in the form of education. The good news is that with the power of the web information is ever more accessible and there are plenty of great people out there doing some brilliant work in helping everyone understand money matters more clearly on the web (including Pete Matthew with meaningful money, the ladies and gents behind Project Eve and the money made clear team).

So, how do you feel about the recent rise of the payday loan? Do they meet a need, or contribute to individuals becoming more dependant on credit? Also, what else can and should we do as a society to help people manage, save and invest their money more effectively?

What do you think?