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Firms Not Budgeting For New Pension Rules

Communicating Changes Seen As Biggest Challenge


Although the majority of businesses in the West Midlands have started making plans in readiness for new pension laws, over half have not yet budgeted for making compulsory contributions for staff - according to a survey.

The findings, from national law firm Irwin Mitchell, reflect an improving picture across the region in relation to new auto-enrolment laws compared to when the survey was carried out earlier in the year. In February 2011, the report found that less than a third (31%) had started making plans compared to 53% of organisations now.

Auto-enrolment will be phased in from October 2012 and will mean that eventually every employer will need to contribute to the pension pot of all employees aged between 22 and state pension age who earn between £7,475 and £33,540 per year. 

Although the survey revealed that businesses have become more proactive in their approach, out of the companies which currently offer their staff pensions, only half said that the policies were auto-enrolment compliant. One third said they had not checked their employee contracts in relation to the changes and over half were concerned about how they would communicate the changes to staff.

Other findings from the survey were:

- One third of employers thought that staff should not be auto-enrolled for a company pension. Earlier in the year over half (56%) thought that employers should not. 

- Communicating the changes to staff was seen by bosses as being the main challenge to their organisation of implementing the changes

- Four out of 10 said that their payroll systems could cope with the changes, up fro 12% earlier in the year.

Fergal Dowling, Employment Partner and Head of Business Legal Services at Irwin Mitchell in Birmingham said: “Although its full implementation is still some way off, auto-enrolment is one of the most significant pieces of pension legislation to affect businesses for some time. Compared to earlier in the year it is pleasing to see that businesses have taken action, however there is clearly a lot of work to be done, especially in terms of budgeting for the increase in costs, ensuring back office systems are in place, and that employee contracts are legally compliant.”

Auto-enrolment for pensions will be rolled out initially to companies employing between 30,000 and 500 staff. Those with between 499 and 50 staff will be affected in 2014, whilst those with less than 50 will see the new rules apply between August 2014 and February 2016.

By 2017 the minimum contribution will be 8% of relevant earnings comprising 4% from the employee, 3% from the employer and 1% tax relief.  Initially contributions will be phased in so employers joining in 2012 will need to pay 1% increasing to 2% in 2016 and 3% in 2017.

Businesses will be able to choose between existing arrangements, if they meet exemption criteria, new qualifying arrangements, or the National Employer Savings Trust as a vehicle for delivering the pension.