Tuesday, 13 August 2013

We need to talk about... Pensions

We really do need to talk about this. I am a little horrified how few chambers (and smaller law firms) know enough (or indeed anything at all) about the new Auto-Enrolment Pensions. Those people who do know a little about it quite often say to me "Oh we don't to worry about that now - it's years away for an organisation of our size" - but then usually can't tell me just how far away it is.

Some background might help. Auto-enrolment is a system by which every employee will be automatically part of a pension scheme to which both the government and the employer will have to pay in. Individual employees can choose not to be a part of this, but experience with large firms, which are already part of the scheme, suggests that very few will choose to opt out of the system.

So - when is it coming in? Well that depends on the size of your business. On the assumption that most of the chambers I deal with have fewer than 30 employees (the minimum cut-off that the Pensions Regulator outlines), the answer is some time between November 2015 and April 2017 (depending on the last two characters of your PAYE employers code - see here for the detail).

I can already imagine some rolling eyes from members of chambers and the expression "I was right - it's ages away so we don't need to think about it yet" being used.

I disagree. Each employer will be paying a minimum of 3% of each persons' pernsionable salary (which includes bonus, overtime etc) but there is a total minimum of 8% which must be contributed and so if the employer is going to only pay the minimum then the employee will have to pay 5% - which, of course, they will generally see as a 5% cut in wages. Both of you need time to get used to the payments (although the 8% is 'rolled-in' itself between now and October 2018) and so should consider setting up a scheme early and, perhaps, adding a 1% contribution a year for both parties. Note that doing that, you still won't avoid a 'jump' in payments if you are in the last batch that are required to set this scheme up. Now is not too soon to be thinking about this.

You should be making sure that employees know about Auto-enrolment - perhaps even taking the unusual step of having a meeting with them all and asking about how they would prefer to do this. Before any meeting, however, chambers needs to know what they want to do - do they want to avoid a cash-flow shock and not start until they have to, then taking a 3% hit in one year (and not worrying too much about the 5% hit for the employees until they all complain about it); or would they prefer to work into the scheme? Are you going to pay only the legal minimum of 3% or are you going to offer, say, 4% so that contributions are half-and-half with the employee? Are you going to offer more?

This means that chambers needs to be up to speed with the scheme and know all about it so that sensible and informed decisions can be made.

Chambers will also need to decide what sort of scheme they will offer and who will provide and administer the scheme.

I know that almost no members of chambers want to talk or think about pensions for their employees - but now is the time to start. Perhaps you could think about a scheme that members of chambers could join too...

More details on all of this from the Pension Regulator's web site here - or get in touch for a translated view. I'd be happy to explain what is necessary and to help with the planning process.

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