| Changes ahead for retirement |
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Kent law firm Thomson Snell & Passmore warns that important changes that will have a significant impact on the pensions and retirement landscape for both employers and employees have been announced. The government has laid out plans for the introduction of its new compulsory workplace pension scheme. Additionally equality minister, Harriet Harman has suggested that the current rules governing the age at which employees must retire could be under immediate scrutiny. Smaller firms get extra time to prepare for the new pension scheme Small businesses are to be given flexibility over the introduction of the government’s new compulsory workplace pension scheme. It will be known as the National Employment Savings Trust (NEST), a change from the original Personal Accounts and is aimed at employees aged over 22, earning between £5,035 and £33,540 who do not have an occupational pension scheme. Described as a ‘landmark reform’ by Pensions Minister, Angela Eagle, the scheme will see all employees who are not already members of a qualifying occupational pension scheme enrolled into the fund. This is due start in October 2012 when the largest businesses, those employing 120,000 staff or more, will begin enrolling workers. Smaller firms will join the scheme on a phased basis over the next three years. Start-up businesses formed from 2012 won’t be required to implement a NEST fund until 2016 and auto-enrolment is expected to be fully introduced by 2017. Phased contributions Employer contributions will also be introduced on a staggered schedule. Employers will be required to contribute a minimum of one per cent of an employee’s gross salary to the fund as from 2012. That will rise to two per cent from 2016 before reaching three per cent in October 2017. Announcing the details Yvette Cooper, the Secretary of State for Work and Pensions said: “Even during these difficult economic times, employers, industry and unions agreed with us that these reforms were vital in giving millions of people the chance to save in a pension for the first time. “All employers will be required to pay into a pension for their workers for the first time. We have responded to the concerns of business to make the introduction of these reforms as straightforward as possible. Start-up businesses will be given valuable extra time to prepare for these changes as we come out of recession.” Currently, some 14 million people get no contribution from their employer towards a pension and around 7 million people are not saving enough for their retirement. Ms Cooper concluded: “These reforms will give everyone the chance to build up a pension. It is the biggest change to support for working people since the introduction of the minimum wage.” Landmark reforms Angela Eagle, the Pensions Minister, added: “These landmark reforms on a scale unprecedented anywhere in the world, will ensure millions of workers on low and moderate incomes will be able to save for their retirement with a guaranteed new minimum contribution from their employer, many for the first time. “It is essential we get the foundations right and continue to focus on minimising any process burdens on business. With the publication of the regulations today, we take a big step closer to automatic enrolment from 2012, moving from consulting with employers into a phase where we explain in clear and simple terms what their obligations will be.” Retirement worries Some experts however, have cast doubt on the ability of the scheme to provide a viable retirement income Ros Altmann, of the London School of Economics and a former pensions adviser to the government warned that employers could opt to reduce contributions to the basic level and that some low-paid workers could lose out because their NEST savings may disbar them from means-tested benefits in retirement. Ms Altmann said: “Employers will cut back towards the minimum and many workers also face the danger that employers will cut their pension contributions back to the NEST minimum, which is less than half of current average employer pension contributions. “This levelling down effect is already starting, as the Government has given employers a new target to aim at, as long as they are putting in three per cent that’s all they need to do. “The image of a nest egg is misleading because so many will find their nest is empty as they have saved merely to replace means tested benefits they would otherwise have had.” |
