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.