“The upcoming reform of company pension schemes in the Government’s NEST scheme has major cost implications for employers, and financial planning implications for everyone. Employers who act now can significantly reduce the cost burden of the compulsory requirement to provide a company pension scheme.”
Gareth Flanagan, Principle First Financial Advisers
Company Pension Schemes
Almost all employers will be required to make a company pension scheme available to workers in the near future, as the Government reforms company pensions with the set-up of the National Employment Savings Trust (NEST).
Nine out of 10 companies will require company pensions advice, as the launch of NEST approaches, according to PADA, the government authority organising NEST.
Given that 80% of employees are expected to have pensions provision in place just 7 years from now, employers need to take action now to meet the challenge.
At Principle First, we are perfectly positioned to meet that demand for company pensions advice. Call us today – we can help you control the cost of the compulsory requirement to make pensions provision for employees.
Get company pension advice or call 0800 678 5929
Already we are seeing a growing inflow of enquiries about company pension schemes, as the launch of NEST approaches. Employees who have no pension now will be ‘auto-enrolled’ into NEST, which means that employers with no existing company pension scheme today will be forced to participate.
All employers who opt for the NEST scheme will pay 3% of salaries into NEST government pensions, as part of total contributions of 8%. On top of these employer contributions, NEST is likely to involve substantial administration costs for managing pension contributions and pension benefits.
As a government initiative, the NEST will be under public scrutiny, particularly with regards to its overheads and costs. As a result, many believe it may be run ‘on a shoestring’ and may have access only to the less expensive investment funds on the market. This may limit its capacity to generate worthwhile returns for investors. Concerns have also been expressed that NEST has little to offer employees already in their late forties or fifties, as they would not have time to build up a substantial investment in the fund.
Take control with your own company pension scheme
Every day we are contacted by employers who are aware they can control their costs by acting now to create their own occupational pension scheme, that will exempt them from the NEST.
On the employee side, we are advising on setting up personal pensions with the potential for a higher retirement income than what the NEST is likely to deliver.
Click here for advice on the NEST versus personal pensions
Types of company pension scheme
When a company pension scheme is run by the company itself, it is known as an occupational pension scheme. There are two types – the ‘salary related’ scheme and the ‘money purchase scheme’.
In a salary related scheme, your pension income will be related to your final salary and the number of years you have contributed to the scheme. Salary related schemes are becoming less common, as the employer is required to make up the shortfall if the investments do not deliver the pension you were promised.
In a money purchase scheme, your final payments are not fixed or predictable, as they depend on the returns on the investment of your contributions. In other words, it is the employee and not the employer who carries the risk. We can advise you on the quality of the scheme you are in, and on your options if you feel a need to separate pensions provision through a personal pension.
Companies with more than 5 employees must make a pension scheme of some kind available to their workers.
If your company has more than 5 employees, but chooses not to set up its own company-run occupational pension scheme, your employer has two choices. Either he must offer you access to a standard stakeholder pension scheme, or you can join an alternative personal pension scheme where your employer pays contributions equal to at least 3% of your salary.
If your employer offers you access to a stakeholder pension, he is not required to contribute, although most do so. As a minimum, your employer is required to organise your contributions for you directly, through the company’s pay system.
Another option for your employer is to set up a Group Personal Pension Plan (GPPP). This is a plan run by a pension provider and should not be confused with a company pension scheme, which is run by your company. Group schemes of this kind have the pension as their core element, but can include other benefits as part of an overall package, such as income protection insurance, life insurance, and private health insurance.
Get Pension advice here or call 0800 678 5929 to speak to one of our expert advisers
