Press Releases
Firms must Face up to Auto Enrolment
A director at top Halifax Wealth Management Consultants, LRH Wealth Management Ltd, has urged businesses to start preparing now for the new ‘Personal Accounts’ – designed to fund future pension provision – which are set to come into place over the next few years in one of the biggest changes ever seen to personal pension provision.
Due to be introduced in 2012, Personal Accounts are designed to address a perceived shortfall in the amount people are saving for their retirement, by making saving automatic, with all employees aged 22 or over expected to be enrolled automatically into the scheme. Although an employee will still have the right to opt out of such an arrangement, it is hoped the end result will be more people paying into pension schemes than is currently the case, particularly among low or middle-income earners.
Sue West, LRH Wealth Management Ltd director, said: “While the current legislation states that all employers must offer access to such a scheme – and contribute to it along with the employee and the government – there has been concern over how this will affect the smallest employers, and the level of their contributions is expected to be phased in over two to three years from 2012, to ease the burden.
“Of course, it is possible the timetable could slip and smaller firms may eventually be given even longer to get their schemes up and running, or offered other concessions, particularly if there has been a change of government by then.”
However, she pointed out that, regardless of the uncertainty caused by the forthcoming general election, it was still almost certain firms would have to pay more towards their employees’ pensions in the future.
“The Conservatives have raised some concerns about Personal Accounts, particularly their likely effect on small businesses, and whether they will actually bring about the hoped-for increase in savings levels,” she added.
“Nonetheless, they also recognise the need for more people to save for their retirement, so while they may propose some changes to the scheme, they are unlikely to propose scrapping it altogether. Therefore, while there are still some uncertainties surrounding the Personal Accounts scheme, employers are likely to be facing additional pension costs one way or another very soon, and it makes sense to start planning how they would fund that now.”
The employer is free to decide on what type of pension provision they wish to make available, and it may well be the case that different types of scheme – defined benefit, money purchase or personal accounts – are offered to differed grades of worker.
Further complications, which are yet to be fully addressed, concern what will happen to workers with fluctuating pay (due to commission, bonuses or overtime), part-time and casual workers, and employees who work for more than one firm, as well as the very low-paid.
Sue added: “The money that people have been forced to save will simply reduce their entitlement to state benefits, and in some cases they could end up in exactly the same position as if they had spent the money and had no Personal Account savings at all.”
For more information contact LRH Wealth Management Ltd on 01422 360788.
