Freedom and choice in pensions – surely that’s a joke!

Housesofparliament 300x180 Freedom and choice in pensions   surely that’s a joke!The auto enrolment band wagon rolls on and the latest statistics tell us that so far there has been a favourable response from workforces nationwide. Opt out rates are much lower than predicted and clearly this is good news in relation to the Governments original intention in building a self supporting culture in retirement.

So all is well, or is it? Based on the fact much of the cost of promoting self-sufficiency in retirement has been landed on the employers’ doorstep it is not surprising the number of business owner firms planning far enough ahead remains still very disappointing. Recent surveys continue to demonstrate that many employers are burying their heads in the sand and hoping the issue will go away. A poll last month revealed that 49% of SMEs and micro-employers understand little or nothing about the pension changes with 67% having no idea even of their staging date.

Here at Calvert Financial Solutions we continue to progress clients to a position of safety at a cost that satisfies an agreed budget using all the phasing and postponement tools available where appropriate. It’s important now that we continue to adopt a pro-active stance in helping clients get to grips with the auto enrolment challenge.

On 21st July 2014 the Government gave a green light to the radical rewriting of the pension rule book. The Government response to the Freedom and choice in pensions‘ consultation delivers on the Chancellor’s Budget promise of much more pension flexibility and provides further detail on some of the changes in store from next April. This promise of pension freedom is set to encourage more clients to look in earnest once again at pension planning as a key component of a robust long term financial plan.

We believe that we should provide our Clients with a level of service and support that creates immediate auto enrolment solutions for their business, whilst also providing a structure that will assist their future growth and development.

Based in Inverness, our regional strength tends to lie in North Scotland and the Highlands and Islands, although we have clients throughout the UK. Our locality has been a decisive factor for many of our client firms and this is reflected in the strength and delivery of our services and accessible design and implementation support functions.

For auto enrolment specifically what can you expect from CFS? By working closely with you and understanding your workforce and your needs we will:

  • Deliver a communications plan for your workforce
  • Assess your workforce and estimate costs for you the employer
  • Select the right pension scheme for you and your workers
  • Arrange employee presentations to enable your workforce to understand what will happen and when
  • Arrange for a face to face appointment with employees and give individual advice
  • Arrange regular reviews to ensure that you the employer remain within the legislation requirements and avoid large penalties from the PR

Auto-Enrolment FAQ for small businesses

FAQ auto enrolment 300x158 Auto Enrolment FAQ for small businessesThere are still many business owners asking me what the pensions Automatic Enrolment legislation means for them. So for those who need a whistle stop tour of the main headlines I have produced a FAQ below.

Back in 2006 the Department of Work and Pensions’ research estimated that around 7 million people were not saving enough for their retirement needs.

To increase private provision for low/medium earners the Pension Act 2008 introduced workplace pension reforms effective from October 2012. These pension reforms mean that, eventually, all employers will have to offer a qualifying workplace pension scheme to their workers and that all eligible workers must be automatically enrolled into the chosen scheme.

To understand what is required of employers here are the most frequently asked questions.

What is Auto Enrolment?

It’s the process where an eligible employee is automatically enrolled into their company’s qualifying pension scheme without any action on their part. Under new Government legislation, this is a legal requirement for all UK employers.

Why is Auto Enrolment happening?

A large number of the working population in the UK are not saving enough for retirement or taking advantage of private pension schemes that may be on offer. We are living longer and have an increasing proportion of people of retirement age compared to those of working age. Auto enrolment is a part of a Government initiative to increase private retirement savings.

When is it happening

Auto enrolment began in October 2012. However, to help businesses prepare for the administration changes and costs of auto enrolment, it has been introduced in stages. The larger employers started to auto enrol their employees in 2012 while medium to smaller employers are being phased in over the next 4 years. By February 2018, all employers will have enrolled their employees into a qualifying scheme.

Is everyone being enrolled into a workplace pension?

Employers will have to auto enrol any eligible employee. An eligible employee is anyone aged between 22 and state pension age whose earnings are over the income tax personal allowance (£9,440 a year from 2013/14). There are different rules for staff outside these age and earnings ranges and employers will be required to ‘assess’ the whole workforce and know how and when to act in every circumstance.

How much will have to be paid into the qualifying scheme?

The total minimum contribution will eventually be 8% with the employer having to contribute at least 3%. The difference between what the employer must pay and the overall minimum contribution is made up by the employee plus some tax relief from the Government.

Where will the contributions be invested?

The scheme will need to have a default investment fund available as agreed with the pension provider. This will be used to auto enrol new employees and for those who don’t want to make an alternative investment choice if the scheme offers one.

What if the employer already offer a scheme?

The employer may already offer employees a scheme, but it will need to meet certain criteria to be suitable for auto enrolment. All types of schemes must have the means to auto enrol eligible employees. If the employer doesn’t currently offer any scheme or their current scheme does not meet the criteria then they can either change the current scheme to fit the criteria or set up a new scheme.

The DWP published a progress report in December 2013 on the success or otherwise of auto enrolment. It announced that so far over 2 million individuals had been auto enrolled with less than 10% deciding to opt-out – workers can decide whether to remain in the pension scheme or not. The data also suggests that many small to medium sized businesses are still not certain of their roles and responsibilities and are at risk of non-compliance. Since it can take up to 18 months to design and implement an effective auto enrolment pension solution business owners need to take action early.

First Auto Enrolment Non-compliance Notices Issued by Pension Regulator

financialadvisor11 First Auto Enrolment Non compliance Notices Issued by Pension Regulator  This year some 38,000 businesses are scheduled to automatically enrol their staff into a qualifying workplace pension scheme (QWPS) with 32,000 employing between 50 and 250 employees set to go from the beginning of the new fiscal year in April 2014.

Much has been said in connection with the low opt out rates experienced by larger employers to date – workers are permitted to back out of the scheme if they wish within the first month – but is this really such a surprise?

Only just a few years ago research showed that for the majority of employees saving for retirement was less of a priority than holidays, home improvements, going out, saving for a rainy day, the car, shoes and clothes. A recent survey undertaken on behalf of NEST (National Employers Savings Trust) suggests that auto enrolment activity has pushed pensions right up the list of consumers’ priorities. Is this because during recessionary times people feel more vulnerable for their future? Or is it just that we all understand that life is short and we need a plan.

Whatever the reason it is clear that the idea of saving for a future income including a pension now resonates with the UK public more than ever. The recent Budget announced massive reforms around pension accessibility which will only accelerate this shift of opinion.

The responsibility of setting in place qualifying workplace pension schemes has been landed on employers and some cracks are beginning to appear. The Pensions Regulator (TPR) investigated more than 500 suspected breaches of auto-enrolment (AE) legislation in just 6 months and 590 in total since October 2012.

As a result the regulator took action under its compliance and enforcement policy in 134 instances to 29 January 2014. The most serious of the compliance notices issued related to companies who had failed to establish a scheme and complete registration.

In addition, TPR delivered 28 instructions to companies at risk of non-compliance prior to January 2014 and 101 warning letters were issued for minor alleged record keeping or staff communication breaches.

The latest figures come as a concern rises over employers failing to meet their AE duties due to the anticipated industry capacity crunch in the coming months.

Budget 2014: Pension changes mean more control over your money

George Osborne 2014 Budget 2014: Pension changes mean more control over your moneyThe Chancellor has announced a radical reform of pension rules which will mean that anyone over the age of 55 will be able to take their entire pension pot as cash.

From April 2015 anyone who is aged 55 or over will be able to take their entire pension fund as cash – although only the first 25% will be tax-free – in a move will allow individuals to have access to their own cash, unlike the current system which requires an annuity to be taken out.

Clearly not unintentional this will be a massive boost to current automatic enrolment activity which is already achieving great success with opt out rates much lower than anticipated.

As part of the communications programme for newly installed workplace pension schemes I deliver each week on average two or three workforce educational events. By far and away the biggest question asked at the Q&A sessions is ‘how and when do I get maximum cash from my fund?’. At last it will now be possible to respond with an answer they want to hear.

Mr Osborne said:

“Most people still have little option but to take out an annuity, even though annuity rates have fallen by a half over the last 15 years. The tax rules around these pensions are a manifestation of a patronising view that pensioners can’t be trusted with their own pension pots. I reject that.

“People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances. And that’s precisely what we will now do. Trust the people.”

I couldn’t agree more although it will be crucial that individuals understand the full implications and make informed, thought through decisions.

The Chancellor also announced that the income requirement for flexible drawdown has been cut from £20,000 to £12,000 and the capped drawdown limit has been raised from 120% to 150%. This will make available this highly effective planning tool to a much wider audience for the first time.

Whilst its good news for investors it is a huge blow to annuity providers who at one stage had £3.2 billion knocked off their stock value in less than one hour yesterday. It may not be the death knell for annuities but it will demand a shake-up in their thinking.

Elgin Lunch and Learn Review

ElginMuseum Elgin Lunch and Learn ReviewI was running another seminar on Auto-enrolment for small businesses in conjunction with Business Gateway and Moray Council in Elgin recently and felt it was a useful day for all involved including myself.  

I delivered an update on the current pension reforms specifically around the impact on SME employers of pension auto enrolment. Whilst most business owners are now aware of the legislation many are still unsure as to when it will actually affect them, however it was good to hear many delegates now embracing the idea and initiating action.

Business owners are still getting to grips with the details of this legislation but  awareness amongst business owners is a lot higher than it was this time last year.

MorayCouncil Elgin Lunch and Learn Review

The feedback was again good and I’ll be providing all those in attendance with our Auto Enrolment Initial Assessment report which confirms what employers need to do and by when.

So thanks once again to Business Gateway and Moray Council for having me along and thanks to all those who came.

 

Top 5 reasons to pay into a pension this tax year

tax year Top 5 reasons to pay into a pension this tax yearAs we approach the end of the tax year it’s a good idea to remind ourselves of all the good reasons to invest into a pension plan, here’s our current Top 5.

1. Get personal tax relief at top rates
  • For individuals who are higher or additional rate tax payers this year, but are uncertain of their income levels next year, a pension contribution now will enjoy tax relief at their highest marginal rate. This has a positive impact on employees whose remuneration can fluctuate year on year perhaps through bonus payments, or self-employed clients who have had a good year this year, but are not predicting repeating it in the next. Adapting the carry forward and ‘Pension’s Input Period’  rules provides the opportunity for some to pay up to £240,000 tax efficiently in 2013/14.
  • For example, an additional rate taxpayer this year, who feared their income may dip to below £150,000 next year, could potentially save an extra £5,000 on their tax bill if they had scope to pay £100,000 now.

2. Pay employer contributions before corporation tax relief drops further

  • Corporation tax rates are falling, expecting to reach 20% by 2015. Business owners who are considering boosting pension provision for key staff over the coming years should consider bringing forward those plans to benefit from tax relief at the higher rates. Payments should be made before the end of the current business year, while rates are at their highest.
  • For the current financial year the main rate is 23%. This drops to 21% for the new financial year starting 1st April 2014.

3. Sweep-up unused allowance from 2010/11

  • Use it or lose it – unused pension annual allowance from 2010/11 tax year must be used this current tax year. The annual allowance still available is £50,000 so for a 40% taxpayer, this could mean a missed opportunity to save up to this amount at a net cost of only £30,000.

4. Make the most of the £50,000 pension allowance

  • The annual allowance drops to £40,000 from the new tax year.  But the ‘Pension’s Input Period’ rules mean that some clients are paying towards this limit already.
  • Carry forward for the three previous years back to 2010/11 will still be based on a £50,000 allowance. But over time, the new £40,000 allowance will come into the calculation and dilute what can be paid. Up to £200,000 can be paid to pensions for this tax year without triggering an annual allowance tax charge. By 2017/18, this will drop to £160,000 – if the allowance stays at £40,000.

5. Avoid the child benefit tax charge

  • An individual pension contribution can ensure that the value of child benefit is saved for the family, rather than being lost to the new child benefit tax charge. And it might be as simple as redirecting existing pension saving from the lower earning partner to the other.
  • The child benefit, worth £2,449 to a family with three children, is cancelled out by the tax charge if the taxable income of the highest earner exceeds £60,000. There’s no tax charge if the highest earner has income of £50,000 or less. As a pension contribution reduces income for this purpose, the tax charge can be avoided.

Staff engagement through pensions auto enrolment

staffjump 1024x682 Staff engagement through pensions auto enrolmentThis is the third in a series of articles on Pensions Auto Enrolment and most employers will be aware by now that the government have introduced new laws aimed at getting people to save for their retirement. Workers not already in a pension scheme are now being automatically enrolled into one – but can choose to opt out.

This is the first time compulsion has been used to resolve the income in retirement shortfall issue and business owners could be forgiven if you were to regard it as just another costly headache for small enterprise. However, since you can’t get out of it perhaps a better way of viewing the legislation would be that it is an ideal opportunity to connect with your staff and show them how much you value the work that they do.

For many employers it will be a chance to re-visit existing pension arrangements, check on their efficiency level and re-market them in a positive light to the members. Businesses setting a scheme in place for the first time should use the occasion to engage with their staff and demonstrate how rewarding a workplace pension can be.

A good quality pension scheme is highly regarded and in most employee benefit surveys sits only just behind basic remuneration on the list of ‘would like to have’. Used effectively it will aid in the recruitment of quality individuals and improve retention. That is why it is so important that employers use this opportunity to install a plan that provides value for money. Opt out rates were anticipated to be around 25% but so far there has been an over-whelming response from the workforce with opt outs averaging less than 10%.

At a time where most of us feel we are working harder for less it is key that all employers get the best out of their most important asset – their people. A successful business needs motivated, accomplished people as they drive for profitability and success. Staff engagement and a sense of well being is a pre-requisite.

Effective communication is vital and will be the means to ensuring a positive outcome – business leaders must make certain they take maximum advantage.

Leading providers no longer taking businesses with less than 6 months until staging date

I recently wrote that so far all was going to plan in the world of Auto Enrolment. And it almost certainly is if you are a medium sized employer with ample time to your staging date, you’ve completed the tendering process with a top quality pension provider and your scheme is working its way through the design phase. clockmoney Leading providers no longer taking businesses with less than 6 months until staging date However I received a communication from a leading insurer last week advising that with immediate effect they would no longer consider taking on new group pension business from employers with less than 6 months to their staging date. Now if one pension scheme provider is taking such a strong stance then you can be certain the others are thinking it. So what does this mean? It means that all employers staging on 1st May – that’s businesses who employ between 90 and 159 workers – need to have already secured a provider to run the Auto Enrolment process or they may have missed the boat on the best options, leaving them with limited and expensive choices.  There is a ‘service break’ in the process for June and so the next ones up for 1st July staging date are those employers with 62 to 89 staff. No-one quite believed pension companies would reach the point of saturation so quickly and it makes complete sense that they limit new intakes of business to ensure the pipeline keeps flowing. It does of course emphasise the need for advisers to be pro-active and ensure their clients don’t end up left out in the cold …. and here in the North of Scotland it can be very cold! If you need guidance in a suitable approach to your clients please contact me and I will be pleased to help.

Cairngorm Business Conference Review

park logo Cairngorm Business Conference ReviewI attended the 2013 Cairngorms Business Conference in the Aviemore Resort Conference Centre last week and what a worthwhile event it was. Calvert Financial Solutions were there primarily to present at the People in your Business workshop sessions run in conjunction with Business Gateway.

I delivered an update on the current pension reforms specifically around the impact on SME employers of pension auto enrolment. Whilst most business owners are now aware of the legislation many are still unsure as to when it will actually affect them, however it was good to hear many delegates now embracing the idea and initiating action.

The new rules aim to increase private pension provision for low/medium earners and mean that eventually (by October 2018) all employers must have in place a qualifying workplace pension scheme and automatically enrol their employees into it.  The largest employers will be first followed by medium sized employers and ending with the smallest employers.

cairngormCFS 300x224 Cairngorm Business Conference Review

The feedback was good and I look forward to providing all those in attendance with our Auto Enrolment Initial Assessment report which confirms what employers need to do and by when.

The conference also provided, courtesy of Richard Scothorne from Rocket Science, hugely interesting research data into the key drivers for the Cairngorms economy. This information contributes to the ongoing formation of the local emerging Economic Development and Diversification Strategy. Overall it was another reminder of the delicate balance which persists in North Scotland and the Highlands and Islands

The day was co-ordinated expertly from the main stage by Cairngorms Business Partnership CEO Alan Rankin and Chair Kevin Roach. It was then finished off by a highly entertaining and thought provoking session from former Scottish rugby coach Frank Hadden.

The annual Cairngorms Business Conference should be added to all local businesses calendars as a must attend event.

So far, so good for auto enrolment

departmentofworkandpensions9 300x185 So far, so good for auto enrolmentAuto enrolment for the largest businesses, employing upwards of a thousand workers, has come and gone and for the most part it has been a successful exercise. Opt out numbers at 9% have been much less than anticipated and employers have supported the government’s pension reforms wholeheartedly. Does our industry deserve a pat on the back then? Well right now I’m thinking this would be very pre-mature. One of the biggest questions has always been how will we cope with SMEs and smaller employers. For the largest employers, most of which already have existing pension schemes in place, auto enrolment has been a pretty straight forward task. Those firms already have experience of administering schemes and most have sophisticated software and payroll systems, HR departments and employee benefit consultant services to help them do it. Clearly this will not be the case for smaller businesses. Research by The Pensions Regulator (TPR) into the extent that employers are prepared for the workplace pensions reform found that many with staging dates between now and February next year still do not know the date they are due to begin enrolling staff. Advisor and provider support remains key so it is of real concern that some of the leading pension scheme providers are already making noises about capacity and some have already reduced their new business intake. Six months from now all employers with 160 to 249 workers will be expected to have a qualifying pension scheme up and running with all eligible employees automatically enrolled into it. By April 2014 the first of all micro-employers (those with less than 50 employees) will have begun to receive their 12 month to staging date notification reminder from the pension regulator. If those employers want a pension solution that provides support then they need to get moving now. At the last count there were 34 official auto enrolment Employer Duties, for example, the provision of designated communications to Eligible, Non-Eligible and Entitled employees. The best pension scheme providers will guide employers and supply this material. For the rest there is the government’s DIY version of NEST (National Employers Saving Trust). In the early days of auto enrolment many viewed the reforms as just Stakeholder pensions all over again and we all know this was largely a damp squib. However this is most definitely not the case this time round. Firstly, the pensions crisis appears to have a far greater resonance amongst UK employees than previously thought. This is evidenced in one of the most surprising findings to come out of the regulators research by the high number of non-eligible employees opting to join their pension scheme. Remember this group of employees are of an age or salary band that are not automatically enrolled to the scheme but must be given the opportunity to opt in. Secondly, at the time of writing TPR have almost 100 non-compliance investigations in progress so it looks like they mean business this time. There is no denying that auto enrolment starting contribution levels alone are unlikely to build an adequate pension pot for the majority. The department of work and pensions document, ‘Framework for the Analysis of Future Pensions Incomes’, revealed that even with the rise of workplace pension schemes, auto enrolment and state pensions benefit increases million of people still face an uncertain financial future. But we have at least taken a step in the right direction.