AccountingWEB introduction & pensions question

AccountingWEB introduction & pensions question

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First of all, I’d like to introduce myself. I’m the new community correspondent for AccountingWEB, which means I’ll be frequently seen around this website.

We’re putting together a piece on auto-enrolment and would love to hear your views on some questions surrounding this.

41% of SME’s have not heard of auto enrolment, and nearly 20% don’t think that it applies to their business, according to research by RSM Tenon.

However, MP Simon Webb says that by 2017 it will have been “so huge that by the time we get to the smaller firms, they will know.”

Concerns about the complexity of setting up and managing an auto-enrolment process however is prompting Tenon to say planning ahead is essential to help companies and practices manage resources and costs.

What are your main concerns about auto-enrolment?

Do you think you have enough time to prepare or are you already getting the ball rolling? 

Replies (10)

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By zebaa
02nd Oct 2012 19:47

My concerns

...is that owners of SME's often rush the choice of pension provider and get it wrong. This means they and their employees pay more & get less than they should. There is loads of time yet for most firms, but the 41% need to get their fingers out.

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By User deleted
03rd Oct 2012 15:56

Auto-enrolment?...

... just another stealth tax allowing government to abrogate their obligation.

On a serious note, now is the time to be telling your clients about this, as sensible employers will start now, and offer employer contributions as part of their annual pay reviews so that come mandatory enrolment this will be in place and the costs mitigated.

 

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By Rachael White
03rd Oct 2012 16:09

Thanks for your opinions. 

Thanks for your opinions. 

Has anyone found that clients have been starting to prepare now, or get worried about it, or are people relaxed in general about its implementation? 

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By Democratus
03rd Oct 2012 16:51

There's a lot to discuss in this from both sides of the employment contract and from both side of the pension provision market.

Many SMEs can't afford to enhance payroll costs and, if they have any sense will instigate a salary sacrifice scheme to reduce the direct cost to them.

Many employers find that employees don't actually appreciate that the employmer's cost of a pension is part of their overall package, so there's not much to be gained in terms of goodwill by autoenrlement.

Can the employees actually afford to join? Sure the 1% looks easy but the rack up over the years will place a strain on those with low to modest wages.

The provision of autoenrolement is not as straightforward as the government would have the employees believe. Depending on age and level of income there are several scenarios which the employer must consider before even determining if an employee should be autoenroled.

Opt out and resetting pay to what it would have been had the employye not been autoenroled in the first place. What cretin thought that up? Why not allow a period of 4 weeks after employment for the employee to rationally decide what is best for them.

What Scheme will the employer offer, an adjunct to curent COMP or DCS, a new scheme, or NEST? Given that there was only one real contender bidding for NEST it's hard to see that in the long run they will be amongst tjhe best providers.

How mobile are pensions really? The costs of moving often mean that one is best leaving a series of deferred pensions throughout ones career rather than combining them. The alternative is for people who barely understand this complicated market (And I would include myself in that category) to seek and pay for independant financial advice.

What about Universal pensions, I can't  see that making minimum contributions throughout one's career as an when it is affordable will adeaquately replace the amount of NI stolen by governments over the yaers with a promise of a good state pension when you retire. Just ask today's retirees what is the difference between expectation and reality.

I'm not against people providing for retirement but the lack of certainty and clarity that we get for governments of every colour, the view that why should i save now when others don't and we all get the same level of state support anyway due to means testing, the failure of the Financial Services Industry to show that they can be trusted with our money, the attacks on scheme assets by governments over the years (Gordon the bandit Brown for instance) are all reasons to be sceptical, and keep whatever monies you can salt away out of the hands of 3rd parties.

Oops! this response appears to have turned into an essay - i haven't done one of those for years. I'll let someone else take up the pen.

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By User deleted
03rd Oct 2012 17:06

I think the old wise one ...

... hit the biggest nail withthe NI comment.

Haven't doen teh exact maths, but for every £100 earned in the UK, the Government gets a conservative estimate of £10, probably nearer £15.

The fact they cannot provide adequate pension and healthcare from this is because it was never ring fenced and hads been plundered for many and various purposes over decades, and is the sole reason we are in a smelly river with no paddle.

The biggest cretin is the one who decided to fund current pensions from current tax take, and not ring fence past NI deductions to build up a fund for future pension commitments! 

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By geoffwolf
03rd Oct 2012 17:54

Fund build up

If auto enrolment means that a personal fund builds up for each employee it can only be a good thing and, as I have been saying for more years thanI can remember, Is the method by which the majority of stall pensions including state pensions should always have been dealt with.

If it also means that death before retirement enables that fund is there as a death benefit, better still.

Once proper funding of pensions has existed for 40 years payment of back pensions out of current taxes shoul only exist for benefit recipients.

 

I don't understand how an opt out has been allowed. Opting out should really only apply if someone can prove that their pension build up is being funded privately. That proof should also be tested on a regular basis.

All this would in due ciourse create ample scope for a general  reduction in NI contributions and perhaps even other taxes. 

 

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By Steve Holloway
04th Oct 2012 10:02

Just the ageing population OGA

Ring fenced or otherwise it would never have been sustainable with the changing labour / pensioner demographic. When NIC funded benefits were conceived the average years of pension contributions to be paid before death were ... 4 and now they are 20. Of course, any government over the last 40 years could have increased tax/nic to bridge this gap but we workers would of course not have elected them.

Auto enrollment is the first sensible solution I have seen proposed in my lifetime ans should be encoraged. I also agree, however, that there should be no opt out. Unscruupous employers will make this conveniently possible for the employee. My hope is that this was just a temporary sop to get the bill passed and will soon be repealed.

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By User deleted
04th Oct 2012 11:26

Agree ...

@Democratus with pretty much everything said

Nevertheless, all things being equal for a basic rate taxpayer to save into a pension is of questionnable benefit (except for enforced? saving) because:

Changeable Government rules over the its lifetime - e.g. current BOE interest rate manipulation & reduced GAD rates & possible tax free reduction etc.Far too restrictive at the end of the dayMutualised 55% tax rate on death (if in drawdown) so those on BR tax are penalised at same rate as HR savers

Given ones time again perhaps ISA's are the better approach for BR taxpayers because of their flexibility & total access

Now if we could ask the Government for a transfer value of the State Pension (per private pensions) then £107.45pw (£5587pa) @ 2.25% interest requires a pot of around £248k

So please Mr Chancellor can I have a transfer out to a personal pension of my £248k and then I can re-invest it in an annuity for £5,916 (per £100K) which will give me a pension of £14,671

Whereas the same lump sum £248k would only give me £13,640 pa from a private pension (SIPP) maximum drawdown - approx a £1,000 difference

Therefore Mr Chancellor clearly there is a massive inequality between annuities & SIPP drawdown which you have compounded by reducing the GAD from 120% to 100%

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By User deleted
04th Oct 2012 21:50

Not sure I agree entirely Steve

UK population up from 50 to 60 million over the last decade, likely to go up to 70 million in the next, many of these are working age immigrants and their offspring. The current imbalance is in my view temporary and will smooth out in the next 10 - 20 years.

Also, regarding rates, in 1978/79 Class 1 was 6.5%, 1979/80 6.75%, 1980/81 7.75%, 1981/82 8.75%, 1982/83 9% at which it remained until 1994/95 when it went to 10%, static until 2003/04 11%, plus uncapped 1% to 2011/12 then to 12% and 2%.

Class 1 employers has risen from 10% to 12.80% in a similar pattern, Class1A NIC on BIK's were introduced in 1991/92 at the same rate as employers contributions.

Class 4 has risen from 6.3% to 9% and lets not forget the fact that half of the Class 4 was tax deductible when I started out in the 1980's - can't find the date the relief was withdrawn.

So, as you can see NI has risen, for Class 1's by nearly 100% (excluding the fact a large amount of extra payments were brougt into thescope by Class 1A) abd this was not a cause for the government to not be re-elected.

Had all this been ring fenced then it may not have covered all the pension entitlements, but a damn sight more than is now?

As regards opting out, it is illegal for employers to encourage or induce employees to do this. They have to inform them of the right to opt out but cannot give them the forms, they have to independantly request these from the scheme provider - and this will be monitored closely (allegedly)

 

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Replying to carnmores:
By Democratus
05th Oct 2012 08:54

Cretinous Opt Out

Old Greying Accountant wrote:

UK population up from 50 to 60 million over the last decade, likely to go up to 70 million in the next, many of these are working age immigrants and their offspring. The current imbalance is in my view temporary and will smooth out in the next 10 - 20 years.

Also, regarding rates, in 1978/79 Class 1 was 6.5%, 1979/80 6.75%, 1980/81 7.75%, 1981/82 8.75%, 1982/83 9% at which it remained until 1994/95 when it went to 10%, static until 2003/04 11%, plus uncapped 1% to 2011/12 then to 12% and 2%.

Class 1 employers has risen from 10% to 12.80% in a similar pattern, Class1A NIC on BIK's were introduced in 1991/92 at the same rate as employers contributions.

Class 4 has risen from 6.3% to 9% and lets not forget the fact that half of the Class 4 was tax deductible when I started out in the 1980's - can't find the date the relief was withdrawn.

So, as you can see NI has risen, for Class 1's by nearly 100% (excluding the fact a large amount of extra payments were brougt into thescope by Class 1A) abd this was not a cause for the government to not be re-elected.

Had all this been ring fenced then it may not have covered all the pension entitlements, but a damn sight more than is now?

As regards opting out, it is illegal for employers to encourage or induce employees to do this. They have to inform them of the right to opt out but cannot give them the forms, they have to independantly request these from the scheme provider - and this will be monitored closely (allegedly)

 

I hadn't realised that the opt out offer was even more cretinous than I had suggested. I was referring to the lack of time scale to make an informed decision. Geoffwolf has pointed out that an opt out is indeed stupid given the intention is, though not specifically said out loud to enforce private pensions. And now OGA points out that the employer can't provide the poor employee with an opt out form as part of the induction/welcome pack which will include the pension details and compulsory letters. (I hadn't relised that).

I have no doubt that loke most legislation the well intentioned plans of the legislation has been scuppered by poor drafting, even worse technical guidance and enforced procedures designed by people who have never run a payroll, or dealt face to face with employees in their life.

 

JC - let me know how you get on with your transfer request, I'd be interested in the same - i may even give you a fee to arrange it.:)

 

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