Fri, 1 Apr 2011

Employers lack knowledge of pensions reform

The Pensions Regular has called for employers to identify when forthcoming pensions duties will affect them, following research that showed a third of small and medium sized enterprises (SMEs) are unaware they must soon provide a qualifying pension scheme to all employees.

According to a survey of 1,500 SMEs by software provider Sage, nearly half do not currently offer a pension scheme and more than half believe the Pensions Act 2008, which introduced the legislation, will not impact their business.

The reforms coming in from October 2012 require employers to automatically enrol and contribute towards a pension scheme for every employee earning above the minimum wage threshold aged between 22 and the state pension age of 65.

However, the regulator said that SMEs still have time to prepare, as the ‘staging’ process of the reforms means small businesses may not need to automatically enroll employees until 2015.

‘The staging process means that employers will be subject to the new duties over a period of years, starting with the very largest in 2012 and ending with small and micro employers in 2015/16,’ a Pensions Regulator spokesman told Payroll World.

‘We would not expect an employer whose staging date is several years in the future to be taking significant action already. What is important now is that employers of all sizes recognise that the duties will apply to them and that they know when.’

The regulator plans to write to employers of all sizes between 12 and three months before their staging date in order to help them prepare for the changes. In the coming weeks, detailed guidance for large employers and professionals will be issued in preperation for the first staging date.

This year, the Department for Work and Pensions also launched a non-departmental public body, the National Employment Savings Trust (NEST), to help organisations meet the duties.

London in pensions debacle

Public sector workers’ pensions risk being cut by local councils, following what is claimed could be a ‘precedent’ set by London Mayor Boris Johnson, a Member of the European Parliament (MEP) has warned.

Mary Honeyball, Labour MEP for London, has challenged a decision by the mayor to transfer the administration of a key London Government organisation to a private provider, leaving some 150 employees with a pension cut.

Last month it emerged that Visit London, which promotes tourism in the capital, had gone into administration and was to be transferred to a new agency, London & Partners (L&P), launched on 1 April.

The majority of Visit London employees were taken on by the new owner, but liability for the pensions was not assumed by L&P, despite being funded by a government grant arranged by Johnson – a funding member of the new body.

The Greater London Authority, which oversees London Government departments and holds the mayor to account, said it is not responsible for the pensions. It defended itself on the grounds that, although Visit London was funded through a Government grant to the London Development Agency, it is a private company and its pensions are part of a British Tourist Board scheme.

In a letter sent to the mayor last week, Honeyballdemanded to know why the pensions had not been protected. ‘I think it sets a very dangerous precedent,’ Honeyball told Payroll World. ‘If it can happen in London – and Johnson and the others responsible can get away with it - it provides an example for the future, and other Tory authorities might think they can do the same.

‘They were people who thought they were working for a public authority and, as a result, had a secure pension. They haven’t, and it’s been cut arbitrarily.’

A spokesperson for the mayor said: ‘We are pleased to have secured the funds to maintain most of the jobs. With the winding down of any agency, there are obviously difficult legal and contractual issues, for which professionals have been hired to resolve.’

The Pensions Regulator is understood to be investigating the matter, but was unable to comment on the case.

Student debts harm pensions, warns NUS

The Government’s automatic pensions scheme is at risk of being dropped by graduate employees who may be forced to opt out by growing student debts, the National Union of Students (NUS) has warned.

Regulations coming into force in October 2012 will require employers to automatically enrol employees aged 22 and above into a qualifying pension scheme, but after September 2012 many graduates will be paying off new higher-rate tuition fees – some at £9,000 pa – as well as loans to cover living and expenses costs that amount to thousands more.

Anyone is entitled to opt out of pensions enrolment, but graduates earning more than £21,000 will be required to repay 9% of their income above £21,000 from their monthly wage.

The discovery has prompted anxiety within the NUS that graduates will miss out on higher income in the future. Aaron Porter, NUS president, told Payroll World: ‘It seems that every day we see yet more confirmation of the Government’s rushed and ill-conceived reforms to higher education funding.

‘Graduates already struggle to save for the future and they could be well into their 40s before they can afford to buy their own home. Trying to save for an increasingly distant retirement will feel impossible for many as they wonder how politicians of a previous generation got away with selling their futures.’

A spokesperson at the Pensions Regulator confirmed that although employees will be automatically re-enrolled in the scheme every three years, there is no limit to the number of times a person can opt out. Furthermore, action will not be taken against employers if many staff decide not to contribute.

‘If people feel they are struggling because of debts or student loans and think it’s better not to join, then that’s their decision,’ said the spokesman. ‘But students will hopefully feel that getting tax-free savings is in their best interests.’