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Auto-Enrolment changes put pressure on SMBs

Posts Tagged ‘pension’

Auto-Enrolment changes put pressure on SMBs

Wednesday, May 15th, 2019

April 2019 saw the increase of minimum contributions to auto-enrolment pensions from 5 per cent of wages to 8 per cent. With employers now required to contribute 3 per cent, rather than their previous 1 per cent, the Federation for Small Businesses (FSB) has warned that this could put “substantial” pressure on small businesses.

The Institute of Fiscal Studies (IFS) has reported an increase of workplace pension participation amongst small business employees of around 45% as a result of auto-enrolment. That means that businesses who employ between 2 and 29 workers will be seeing a significant extra cost towards pension schemes. These costs aren’t necessarily as daunting for larger businesses, but in the words of Mike Cherry, National Chairman of the FSB, “The costs involved for smaller employers are substantial, in terms of both expenditure and indeed their time, as they have grappled with finding a good provider and setting up whole new systems. Now that the 3 per cent rate has hit, the burden will be greater still.”

But with 70 per cent of UK workers employed by small businesses now on workplace pensions as a direct result of auto-enrolment (first introduced in 2012), employees seem to consider it as an attractive prospect. They too have seen an increase in their minimum contributions, from 3 per cent to 5, and so sacrificing a higher portion of their monthly wages has been accepted as a move that does come with its own benefits. Predictions from investment firm Hargreaves Lansdown state that in real terms, the average employer will see £30 of their monthly wages go towards their pension pot which, on average, results in total pension savings increasing by around £55,000.

Employers, on average, are predicted to now contribute £55 a month to the average employee’s pension pot, an increase from the pre-April figure of £37. These increases aren’t all bad news for employers however; Guy Opperman, Minister of Pensions, sees them as the opposite. “Automatic enrolment has been an extraordinary success, transforming pension saving and improving the retirement prospects of more than 10 million workers already. The increased cost on employers has been phased in over time so firms have had the opportunity to adapt. Pension contributions are a valuable employee benefit which firms use to attract and retain good people. This is true of small and large firms alike.”

DB pension protection following the British Steel debacle?

Thursday, April 25th, 2019

The treasury has made a promise that since the mismanagement of private pension transfers from the British Steel Pension Scheme (BSPS), the FCA will make an effort to “stamp out bad practice.” So what exactly happened, and what comes next?

Members of the (Defined Benefit) BSPS were given the choice to transfer to a new scheme, sponsored by Tata Steel UK but with lower indexation, or to go into the Pension Protection Fund (PPF), the UK’s pension lifeboat fund which cuts benefits by 10% for those who are yet to retire. 83,000 of the scheme’s 122,000 members opted to transfer to the new BSPS with reduced benefits (but higher payments than those that transferred to the PPF) but roughly 2,600 members requested a transfer from the (DB) BSPS to private arrangements.

The advice that these 2,600 people received is under fire for being unsuitable, with several firms subsequently being barred from undertaking pension transfer business. In fact, the regulator found only 48.1% of the advice that it investigated could be considered suitable.

That’s where the FCA comes in. The Financial Conduct Authority is a financial regulatory body operating independently of the UK Government. It’s financed by charging fees to members of the financial services industry. Specifically, it regulates financial firms (both retail and wholesale) which provide services to consumers and thereby maintains the integrity of the financial markets in the United Kingdom.

Officially, its role includes: “protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers.” But what’s changed to help curb the chances of this happening again? In the words of John Glen, the Economic Secretary to HM Treasury; “The new rules on pension transfers provide advisers with a framework to better enable them to give good quality advice, so that consumers can make better informed decisions”

As for your pension, most DB schemes, as well as the defined portion of hybrid pension schemes based in the UK, are eligible for protection, however there are some exceptions. If you’re unsure about your scheme, the Pension Protection Fund provides a full list of qualifiers and conditions at https://www.ppf.co.uk/your-scheme-eligible.

What does a pensions dashboard mean for you?

Wednesday, February 20th, 2019

The development of an online pensions dashboard has been given endorsement from the government and looks as though it will get official approval in 2019. So what is a pensions dashboard? Keeping track of your pensions can be a real challenge, in fact there is currently over £5 billion worth of unclaimed pensions, sitting untouched. The idea of the pensions dashboard is to provide people with a one-stop-shop to access information about multiple schemes and see how much they have available to them. Ultimately, the more informed we are about our pension situations, the better the decisions we can make regarding our retirement.

This isn’t the first time somebody’s had this idea. In fact, the plan to introduce some form of pensions dashboard has been around for a while, but there have just been logistical issues in making it happen.The Financial Conduct Authority first approached the government in 2016 and issued the challenge to make a pensions dashboard available to consumers by 2019. With so much data to collect and so many different organisations involved, it’s not been an easy thing to implement but the end is in sight.

Pensions expert Ros Altmann welcomed the news that the Prime Minister has given official endorsement of the the development of pensions dashboard, stating that it will “help people keep track of all their pensions in one place,” and calling it an “invaluable tool in planning for later life.”

She also acknowledged, however, that there were still some hurdles to overcome. As older legacy pensions are not currently recorded electronically, the task of uploading all of that data will take a considerable amount of time and money. The auto-enrolment pension records, which only began in 2012, could be transferred to a central database relatively easily. This would provide a dashboard for younger workers, with legacy records being gradually updated at a later date.

An incomplete dashboard, however, may come with its own challenges entirely. Tom Selby, senior analyst at AJ Bell, voices his concerns. “The biggest danger is that people make poor decisions based on incomplete information – this situation must be avoided or the long-term damage to individuals and trust in pensions generally could be huge.”

Selby suggested that an incomplete dashboard could be a danger to the dashboard itself. “In the age of instant online banking, people rightly have high expectations of financial companies. A half-baked dashboard risks being discredited from the start.”

There will be a non-commercial dashboard hosted by the Single Finance Guidance Body, although financial services companies will also be permitted to host their own dashboards.

In the meantime, if you think you might have pension pots that have fallen by the wayside, there’s an easy tool to track them down at no cost. All you need to do is get in touch with the government’s Pension Tracing Service – you can find their details at https://www.gov.uk/find-pension-contact-details. If you have any other questions on this topic, do get in touch with us directly.

Financial planning in your forties

Thursday, August 16th, 2018

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Are you keeping track of your pension pot?

Wednesday, June 27th, 2018

Keeping track of your pension pots can feel like a full time job at times, particularly as we head towards a world where the average person will have eleven different jobs over the course of their career. It’s becoming increasingly uncommon for people to stay in the same job throughout their employment. In fact, we’re now seeing that 64% of people have multiple pension pots; that’s up 2% since October 2016. While that in itself is not a worry, what is more troublesome is that of that 64%, 22% have reportedly lost track of at least one of those pots.

Which means there are more than 7 million people who may not have access to the retirement funds they’ve worked hard to amass. To make sure you’re not one of them, it’s really important to keep on top of the bigger picture of what you’re owed.

Despite an increase in pension awareness, thanks to auto-enrolment, recent research has shown that 30% of people still do not know the value of their pension. Of course, if you’re not sure of the full value of your savings, it makes it hard to plan properly for retirement.

For some, the best way to get a clearer view of the situation is through pension consolidation. If you have a number of small, automatic enrolment pots, it could be worth bringing them together to make them more manageable. Consolidation isn’t necessarily the right choice in all circumstances, though. Certain pensions, particularly those of an older style, will come with great benefits that may be relinquished upon consolidation. Whether or not this is the right path for you will depend on your personal situation, so it’s always a good idea to consult an adviser to talk you through the process before making any decisions.

If you think you may have lost sight of a pension pot yourself, there is a pension tracker available through the Department for Work and Pensions that will help you locate it. Do feel free to get in touch with us directly, if you have any questions around this topic.

Mary Poppins pension

Thursday, June 11th, 2015

Auto enrolment is getting closer to home

The roll out of automatic enrolment of employees into pension schemes started back in October 2012 with the largest employers. The logic was that these big organisations would have the necessary resources to start the process quickly and efficiently. Since those early days, the size of employers required to introduce automatic enrolment has been shrinking. As of this month, the threshold fell to fewer than 30 employees.

This is the minimum threshold and embraces nearly 800,000 small and micro employers. In this group, the precise timing (“staging date”) for when automatic enrolment must be offered is driven by PAYE coding letters, which can have unusual effects. For example, two employers working from the same premises might have staging dates two years apart.

The first sub-30 group (with the last two letters of PAYE reference numbers 92, A1-A9, B1 – B9, AA-AZ, BA-BW, M1-M9, MA-MZ, Z1-Z9, ZA-ZZ, 0A-Z, 1A-1Z or 2A-2Z) have now reached their staging date of 1 June 2015. That has prompted some press coverage about the employment of nannies. Parents who employ nannies directly fall within the automatic enrolment rules, even if the recruitment of the nanny was originally via an agency. The initial pension cost will be modest – generally 1% of earnings above £5,824 – but the rate will rise to 2% in October 2017 and 3% a year later. For a nanny in London that could mean employer pension contributions of more than £1,000 a year from autumn 2018.

The pensioning of Mary Poppins is a reminder of the way auto-enrolment is working its way through to all employers. If you are an employer – of any sort – make sure you know your staging date and understand your responsibilities. Failure to do so could lead to escalating fines from the Pensions Regulator

The value of your investment can go down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change.