Budget planning vital as workplace pension reforms are rolled out

New DWP drive to get people to ‘know’ their pensions

Ricky Clark Financial planning consultant, Henderson Loggie Financial Services The Department for Work and Pensions (DWP) has launched a campaign encouraging people to “get to know” their pension and save for retirement through auto enrolment.

The DWP and the Pensions Regulator’s You Work, Your Pension Works campaign aims to maximise participation and compliance in workplace pension by employees and employers.

The idea is to try to reposition the pension from something often seen as complex to something employees should get to know and understand.

A dedicated website has also been launched, which should act as an information hub for employees and employers.

A recent report by the Financial Conduct Authority suggested we might have to work into our 70s, or even longer because we are not paying enough into our pension.

Currently 15 million workers in the UK have no pension at all.

Auto enrolment was introduced in 2012 and means most workers in the UK are automatically enrolled into a workplace pension unless they opt out. Each employer was provided with a staging date by the pensions regulator and the last of these are now staging.

Any new employers will have to add the auto enrolment duties to their list of what they need to do when deciding to take on employees, as their duties start almost immediately.

Auto enrolment contributions will increase in April 2018, then again in April 2019.

If an employer elected to set up a pension scheme for their workers using the qualifying earnings minimum contribution basis, employer contribution will increase to 2% in April, with workers’ contributions increasing to 3% (giving a total minimum contribution required of 5% to be saved in the member’s pension pot).

However, there are two points for employers to consider in advance of the changes:

● Have you included this in your budget for 2018?

● Are you planning to inform your workforce of the changes, and how are you doing this?

The number of workers who were expected to opt out of a pension arrangement was around 15%, but it’s closer to 9-10%.

The increased contributions might lead to an increase in this opt out number, but this is a member decision and businesses should not make plans based on larger numbers opting out.

Also, businesses should note they cannot influence a member to opt out – as this is breaking the law.

The good news about the increase to pension contributions is that people are now saving consistently for retirement – however, this puts more pressure on small businesses, which will have to come up with the additional funds to support the increased contributions.

For these businesses, budget planning for next year and for future increases is imperative.