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NEST - National Employment Savings Trust

All Employers to be Affected by New Legislation

There will be more pensioners in the future and those pensioners will live longer. This is going to put a massive strain on the state pension system.

To alleviate this burden the coalition Government is having to make changes to the basic state pension, the state second pension and are introducing new employer duties for pensions.

For the first time in the history of UK pensions, employers will be required to automatically enrol eligible employees into a workplace pension scheme and if the employee stays in the scheme the employer will be required to make contributions. The only exemption to this rule is a director of a company with no other employees whatsoever; therefore, firms with just one employee are affected by this ruling.

Pensions Commission Report

The roots of these changes go back to 2004 when a report was produced by the Pensions Commission. This non-political Commission found that:

• People are living longer and therefore need to receive money for longer during their retirement.
• The basic state pension is one of the lowest in Europe and on its own is not enough to provide a comfortable retirement.
• The general public view pensions as, at best risky, or at worst a rip off and are reluctant to invest.
• People put off saving in their younger years and then have less time to build up a pension before they retire.

We believe it is imperative that principals of firms are provided with education and support leading up to the changes that will come into effect in October 2012.

Considerable Impact on All Businesses

These changes are going to have a considerable impact on all businesses. You must provide a pension scheme for certain members of your workforce from 2012 and, as an employer, you will need to make a contribution. Even if you already offer pension arrangements for your workers, you will still have some new obligations to meet.

Other employers who have done nothing for their staff will have to set up an arrangement. The extra requirements will mean additional administration and increased costs to your company which will need to be met from somewhere within your business.

Whilst we have seen initiatives on pensions before, namely in the form of stakeholder in 2002, we can be in no doubt that these reforms will be taken seriously by the Government as they need to ensure that the next generation are adequately provided for in their retirement.