A major change to pensions will pose a raft of challenges for almost every business in Scotland in the very near future.
A leading employment lawyer has said that many companies need to start planning now to tackle the administration and cost of the changes – or face potentially serious consequences.
New laws coming into force in October will mean that all employers must automatically enrol all qualifying employees aged 22 and above into a pension scheme, with both employee and employer making a contribution unless the worker decides to opt out.
The reforms are to be phased in over a five year period beginning in October this year, with the largest companies being affected before small and new businesses. The changes represent a seismic shift from previous years. The key differences are:
- Companies must automatically enrol all employees into a qualifying pension scheme
- Existing pension schemes must be compliant and registered
- All employers must pay a contribution
- The minimum contribution is 3% of salary – employees must also contribute
- Jobholders can decide to opt out – but employers cannot encourage them to do so
Ben Doherty of Lindsays said: “The first thing for employers to note is that the pension reforms apply to all companies, regardless of size. The good news for smaller organisations is that they have more time to comply due to the staged phasing in of the reforms. Broadly speaking, businesses with less than 250 employees will not need to implement automatic opt in to a pension scheme for employees until between April 2014 and April 2017."
“Eligible employees are those aged from 22 up to State retirement age, and earning at least £8105 per annum. The Employer must make a minimum contribution of 3% of the employee’s earnings each year. The employees will also have to contribute, and the jobholder can decide to opt out of the pension scheme but will be automatically re-enrolled every three years and would again need to make an opt-out decision."
“Employers are not allowed to induce employees to opt out or make job offers conditional on opting out."
“These pension reforms are designed to tackle an increasing problem in pension provision. As more people live longer, the burden on state pensions becomes ever greater and this is a move to ensure that individuals are more able to provide for their own retirement, rather than having to depend on the already stretched resources from the state, which may not provide the level of income that they need."
“But these reforms could have a serious impact on SME’s, as they may have to bear a significant burden in the form of the direct cost of the contributions and the cost of administering the pension scheme. Many organisations have expressed concerns about the impact on employers and therefore on jobs. The Federation of Small Businesses has, for example, called on micro-businesses with fewer than 10 employees to be exempt.”
Employers who already operate a pension scheme must ensure that it is compliant, and those who don’t must either establish or join a scheme which complies, or join the Government’s National Employment Savings Trust (NEST). These reforms will be enforced by the Pensions Regulator.
Ben added: “Whilst it is the larger companies who must comply first, putting opt out pension provision in place is something that no business can ignore."
"Pension reforms are here to stay, and every employer should be seeking advice and planning the best way to ensure compliance for the future of their business.”