The Cost of Retirement

Landmark reform of the UK pensions system aims to deliver increased financial security for an ageing population. But what impact will it have on small businesses?

We are living longer than ever before. By 2050, the number of people over 100 years old is expected to increase from 9,000 today to 160,000. However, there will only be two tax-paying workers for every pensioner, as opposed to the current ratio of four. To address this, the government has set about making radical changes to the existing pension system to deliver greater financial security for a rapidly ageing population.
In undertaking a landmark reform of the UK pensions system, it has completed a lengthy programme of national consultations, which culminated in the introduction of the Pensions Act 2008. From October 2012, employers across the country will be bliged to automatically enrol their staff into a pension scheme.
"It is in black and white: from 2012, employers across the country will, by law, be required to provide and contribute to pensions for their staff," says Mike Cherry, the FSB's pensions spokesman.
With employer contributions set at three per cent (employees will contribute four per cent, the government one per cent), the reforms are expected to add a significant amount to wage bills.
Evidence collected by the FSB shows that currently the majority of small employers 87 per cent of micro businesses, for example - do not operate occupational pension schemes at all. So, this reform not only represents a significant financial burden, it will also involve a lot of administration.
A simple, low-cost pension scheme, NEST (National Employment Savings Trust), will be launched in 2011 meet the needs of low to medium earners and their 'employers. It will be one of the schemes employers can use to fulfil their duties under the reforms.
While the FSB is in full support of moves to confront the pensions crisis, it is also concerned that the systems in place are overly complicated and is working hard to make them as simple as possible.

The message is clear: the reforms are coming, they will affect every business that employs people, so make sure you are prepared.
"First of all factor in the costs of these reforms into your long-term projections," says Cherry. "Read up on what exactly is required and also start to think about which provider to go with - there won't be a default pension scheme rolled out across the board - it's up to employers to make an informed decision."
"The legislation has gone through Parliament," says Cherry. "All our efforts are now being put into making sure that the operational side of these reforms is simple and straightforward."
Source: The Magazine of the Federation of Small Businesses FIRST VOICE OF BUSINESS
FSB

PENSION REFORMS: THE BASICS
~ Employees between
22 years old and state pension age earning more than £5,035 must be automatically enrolled.
~ Enrolment will be phased in over a period of time, starting with large employers, then medium and then small.
~ Employer contribution levels will be phased in gradually, starting at one per cent, then two per cent, .and finally three per cent. The jobholder's contribution will be
phased in during the same period.
~ Employers will be able to choose the pension scheme(s) they want
to use, provided the scheme(s) meet certain quality criteria.
~ The Pensions Regulator will be writing to all employers one year, and again three months, in advance of their automatic enrolment start date, detailing how to comply.

For more information about the pensions reforms, visit Department for Work and Pensions




Posted by Joe Martin providing business services for small businesses and the self employed. Find me at joemartin.co.uk