Company pensions to be extended

A government review has recommended that all UK businesses should automatically put staff into a company pension scheme from 2012.

The Pension Act 2008 put in place reforms to widen pension provision by requiring all employers to run an adequate pension scheme for eligible workers. This week’s Department for Work and Pensions review goes further by establishing the principle of automatic enrolment.
 
If no company scheme is available, staff will be enrolled automatically in the National Employment Savings Trust (NEST), a new state scheme for low-to-moderate earners that will start in 2012.
 
The review also blocked any exemption for small employers, but instead allowed them three months’ leeway before having to enrol new staff. This was designed to ease the burden on companies that rely on temporary and seasonal workers. But staff want to, they will be able to opt into the company pension scheme or NEST from the beginning of their employment contract.

The threshold for automatic enrolment was raised to £7,500 per year from the original proposal of £5,035. Whatever amount they earn, staff will be entitled to ask to join the scheme and receive employer’s contributions on earnings below the £7,500 threshold.
 
Small business representatives warned that the measure would impose a damaging administrative and cost burden on small companies.

ReesRussell partner and and UK200Group vice-president Jonathan Russell commented that while the principle of forcing people to save in pensions schemes is laudable, the measure will be likely to dissatisfy both employers and employees.

“Employers see their employment cost as being the total price they pay to employ someone and will see this as a further increase in employment costs which many will try to recover from the employee. The employee will therefore see an employer who will wish to restructure the employment package and an extra deduction in their wages all at the same time,” Russell said.

“There are also a large number of people who do not trust the pensions industry to look after their money, nor to give sufficient reward at the end. On past records, this may not be an unreasonable attitude.”

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