IFA Corporate Guide

Pension Responsibilities and Choosing the Right Package

Alarmists may call pensions a minefield; what is sure is no one finds pensions easy and specific expertise in knowing what is available from the entire market can make the difference of thousands of pounds at retirement. Pensions are a particular area where employers could do themselves an enormous favour by warding off disruption further down the line and getting to grips with the pension changes arriving in 2012. This is when workplace contributory plans for lower paid workers called Personal Accounts will be introduced.

Designed to respond to continuing concerns that we are not saving enough for our old age, these will be low–charge personal plans for every worker who does not already have access to a pension. They will co-exist, replace or evolve from existing stakeholder pension schemes.

With no alternative in place, employers and workers will be obliged to open and automatically enrol in Personal Accounts. Those wanting to opt out have actively to do so. Employees will contribute 3% of their pay with employers putting in 4%. The cost burden falling on businesses will be considerable: increased administration requirement to set up and run the schemes as well as more funds to pay contributions if the firm does not have a pension system in place already. Fixed penalties are anticipated for non–compliance. Taking independent financial advice in advance on Personal Accounts and the best way to set money aside to fund them is highly advisable.

Stakeholder pension legislation currently compels businesses with five or more employees to provide their employees with access to a pension plan which falls within the regulations. These are designed as low-cost, flexible plans with annual charges pegged at 1.5%. Members must be able to transfer funds in and out of schemes whenever they choose without penalty. An array of pension providers offer stakeholder pension products and employers can pick from a wide selection.

There is more to complying with the stakeholder regulations than simply picking a pension scheme and employers should make sure that they take all the necessary steps. Under the stakeholder guidelines, employers must consult staff before choosing a pension scheme. Once a scheme is designated, employers must inform their employees of the available pension options and provide information about the scheme.

In addition, employers are responsible for ensuring that their chosen pension scheme meets the stakeholder rules and the scheme provider has registered the designation of the scheme with the Pensions Regulator. Enlisting the help of an IFA can save time as he or she can check these details on your behalf.

Stakeholder pension schemes are not the only option available to businesses. Instead a more sophisticated personal pension or occupational pension scheme can be offered to employees and/or directors. IFAs will look closely at the varying needs of retirement funding for individuals, and consider benefits such as death in service and waiver of premiums, while directors may want to take early retirement. Regular reviews are important to ensure that any plans to deliver employee benefits are doing so as expected.

To avoid making an important pension decision by yourself a discussion with an IFA can help you choose from the hundreds of options available from all the pension providers, enabling you to select the best solution for the company itself and for its employees.

Under a group personal pension plan, for example, employers will be exempt from the requirements of stakeholder pensions if they offer to contribute at least 3% all employees’ salaries. One of the best incentives for employees to join a pension scheme is employer contributions, something Personal Accounts underlines. There are other plus points for group personal pensions as they offer more options than stakeholder ones, such as a larger choice of investment funds, although group personal pensions may be more expensive. This is where an IFA can help decide what is right for you.

The pensions landscape is further complicated by the nitty gritty of the pension schemes on offer and the changing pension rules. For example, employers may currently be providing a final salary scheme, which provides a pension at retirement, based on a proportion of an employee’s earnings at retirement linked to their length of service. A decision may need to be taken as to whether a final salary scheme continues being available to all employees who wish to join or whether a new money purchase scheme is offered to employees, based on contributions paid and the performance of the fund/s where the contributions are invested. Pension simplification has made some choices easier for employers but in some cases it has made pension financial choices more complex through measures such as lifetime limits and the annual allowance.

Copyright © 2008 IFA Promotion Ltd.

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