Auto-enrolment Pensions - Snippet #3

What if we have an existing pension scheme?

Employers with an existing pension scheme don't necessarily have to make any changes. BUT... the existing scheme does have to meet the auto-enrolment criteria (or be adapted to do that). This could apply to any occupational pension scheme, or personal pension plan, or stakeholder pension plan.

That means for example:

• It must fit into the required processes and timescales for enrolling employees into the scheme
• The employer must have an agreement with the pension provider to make contributions on behalf of the employee
• Contributions must be at least 3% of qualifying earnings
• There must also be an agreement between pension provider and employee to contribute the balance of the minimum 8% contributions
• Contributions must be deducted by the employer from pay

Paying the Bills

How does your household expenditure compare with this list which I came across today...?

TV - £10
Water - £70
Council Tax - £200
Cable/Sky - £30
Phone - £30
Gas - £70
Electricity - £60
Mortgage - £500
Food £440
TOTAL - £1,400

And the next question... how would you pay for those things if you lost your job / company?

It's true that Payment Protection Insurance (PPI) was mis-sold, but the danger is that we all leave ourselves with no income protection. Short term income protection (like PPI) is still useful - especially for debts like a mortgage. Long term Income Protection may be better value though.

Auto-enrolment Pensions - Snippet #2

When is it happening?

Your pension duties as an employer mostly* start at your "staging date". This varies according to several things, mainly the number of employees you have. For BIG employers it's October 2012, but if less than 30 then it's in 2015 or 2016, based on your PAYE reference (that's just a way of spreading the dates).

Here's a full list (with some details still to be finalised): Staging Dates

You can bring forward your staging date if you want to align it with, for example, your year-end date.

The Pensions Regulator will tell you 12 months before, and 3 months before your staging date, but if that's the first time you start thinking about Auto-enrolment then you may not get the best outcome!

* but the legislation (Pensions Act 2008) gives you the obligation not to engage in "prohibited recruitment conduct" from July 2012. That means, for example, there are severe penalties if you encourage a new employee to opt-out of your pension scheme (which would save you having to contribute).

I'm Feeling Sorry for this Person

This person

• is early to mid 60's
• is thinking about retiring - or at least moving to a part time role
• has 3 or 4 pension plans - which they haven't really kept tabs on
• has various pension quotes - which they don't fully understand
• has heard that annuity rates are poor - but doesn't know if that will improve or not
• had some plans for their retirement - but are now wondering if it's going to happen like that

That covers many people, unfortunately. And the reason I genuinely feel sorry for them is that they shouldn't have to understand the ins and outs of pension planning, but if they don't, there is a big chance they will lose out financially. Decisions made at the point of retirement can be final, but can apply for the next 30 years or more.

The alternative, of course, is to ask a financial adviser. Fortunately, that's what people are increasingly realising. Money well spent!

Auto-enrolment Pensions - Snippet #1

Employers' New Responsibilities - A Summary

The biggest change to work-based pensions in a generation is rapidly coming down the line, and many employers (especially smaller ones) remain unprepared. Employers have been known to comment:

"Why didn't we know about this earlier?

We must get the rules changed!"

But it's too far along to change things now, so live with it!

I plan to blog a few key points in the near future to help towards understanding. For now, here's a few basic facts:

• Employers will have to have a pension scheme in place
• Processes will have to exist to make sure that employees are "auto-enrolled" into it
• Employees can opt out, but they have to do so repeatedly - the Government's intention is to get people into pensions!
• There are big penalties on employers for non-compliance - this is not another Stakeholder Pensions regime which you can just ignore!
• Enrolment is being phased in from 2012 to 2018, based (mostly) on employer size, but recruitment is affected from July 2012
• Employers must contribute a minimum of 3% of salary to each employee's plan
• The Government are setting up a default pension scheme which will suit a few employers called "NEST"
• Employers can have more than one scheme covering different classes of worker

Best Savings Rates

We continue to be in a low-interest rate world for our savings, as we all know. Finding the best account for your savings is not very easy, either. The banks make it even more of a challenge by reducing interest rates on some accounts after a year, perhaps, hoping that we will forget - to their benefit, of course!

Whenever I try an online comparison tool I seem to find limitations - like the Money Advice Service told me no accounts were available for my search criteria without explanation, and on the next search told me there were 410 accounts available, but I couldn't filter out those where you had to go to the other end of the country into a branch to open an account!

Anyway, my point is that intelligence is needed - but if you've got some of that, here are some comparison tools which are worth exploring.

• MoneyFacts - as linked from Prime Time Financial's web site!
• MoneySupermarket - search allows you to put your own bank's available accounts at the top of the results, since you may prefer to stay with them
• Money Advice Service

New Flat Rate State Pension - Winners and Losers

The Government's plan is to replace the two existing State Pensions (Basic and State Second Pension - previously SERPS) with a flat rate one. £140 per week has been suggested. It's not law yet, but if it happens like that there will be significant winners and losers:

Winners:

• Those only entitled to the Basic State Pension (currently £107 per week)
• The self-employed - who pay lower National Insurance, and cannot accrue State Second Pension benefits - they would get the higher rate for no additional contribution
• Those who were "contracted out" in the past (although it's not possible any longer) - their National Insurance contributions have been funding a private pension which they would still get, as well as the flat rate State Pension

Losers:

• Higher earners who have been "contracted in" so their higher earnings have been accruing them a bigger State Second Pension - which they wouldn't necessarily receive if it becomes a flat rate

There's plenty of water to flow under the bridge yet, but the key message must be (as always) take as much control of your own pension arrangements as possible by contributing to a private scheme.