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Pension Reform Act 2012 – Be prepared and start early

Around seven million people are not saving enough to deliver the pension income they are likely to want, or expect, in retirement. Around 44% of working age employees arenot contributing to a private pension. Interesting but worrying statistics.

From 1st October 2012, all employers are required to enrol eligible staff into a pension scheme. A minimum of 8% of an employee’s qualifying earnings must be paid into a pension, which is made up of 3% employer contributions, and 5% employee contributions. Employers will be able to use their own existing money purchase scheme or group personal pension scheme, as long as it meets the statutory quality requirements. Otherwise employers will have to enrol jobholders in “NEST” (the National Employment Savings Trust), the new government-established central scheme. In any event, employers will have to make minimum contributions.

What costs will employers incur as a result of the reforms? This is an area that is causing much confusion. In addition to the cost of the contribution, there will also be an administrative burden on employers as they will be required to deduct contributions from pay on a regular basis and pass them over to the new delivery authority. The burden will be greater for businesses that pay their staff weekly rather than monthly.

You may feel you have more pressing concerns, and that 2012 is still a long way off. But my advice is to start acting now. By planning ahead, it gives you time to communicate the changes fully and make all necessary adjustments.What decisions have to be made, and by whom? Create a timetable and decide who should be involved at every stage. Make sure everyone knows what is coming, explain the implications.

You should also consider how you are going to communicate these changes to your staff; it is important to engage employees with their pension and there are a variety of methods to achieve this.

“There is evidence to suggest that good HR practice and people management in SMEs are key factors in strong business performance and can lead to increased productivity.”

- CIPD people Skills Project 2017


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