Pension planning

A lack of forward planning by employees has led the Government to introduce major reforms regarding pensions. With enrolment in a qualified scheme mandatory, it is essential for employers to be aware of their duties.
All employers should be aware by now that there are major changes on the horizon regarding pensions. The main change, which will affect almost every employer, is to ensure all employees are enrolled in a qualifying pension scheme. This will be effective from a set date known as ‘the staging date’.
For employers who are yet to enrol their employees onto a qualified scheme, there is a lot of work to be done, and it is certainly never too early to start looking into all the details – regardless of whether the appropriate staging date is three months or three years away.
As a population we are now living longer, with statistics showing that on average this can be an additional 15 to 20 years after retirement. The problem this then gives the Government is that the extra cost to provide state benefits and supplements over the longer period of time cannot be financed indefinitely without some changes being made.
Personal provision
It had been hoped that most employees would come to realise that the state pension could not sustain the increased level of spending that these additional years would require and so look to make their own provisions as a supplement in their retirement years.
In reality, this has not happened and, because many people are still reluctant to voluntarily contribute towards their own pension arrangements, this has forced action to be taken. From the 1 October 2012, the Government introduced Automatic Enrolment (AE) where employers are required, for the first time, to contribute towards pension arrangements for almost all their employees, matched by employee contributions.
The plumbing industry is fortunate because it is in the position of already having a well-established pension arrangement in place that has been looking after employees for almost 40 years (and has operated auto-enrolment since day one).
Some 37,000 current and former employees of firms in the industry (and not solely restricted to plumbers) already have benefits in the £1 . 3 billion Plumbing & Mechanical Services (UK) Industry Pension Scheme. There are other industries, including other parts of construction, where the level of pensions participation and, indeed, the level of expected benefits, are much lower than in this industry. This means that many pensioners in the plumbing and associated industry scheme currently enjoy a standard of living that is considerably higher than some who have retired from a career in other construction occupations.
State second pension
The gross contribution level is currently 3.75% of earnings for an employee and 7.5% for an employer. However, the scheme is contracted out of the state second pension scheme, which means that there is a reduction in National Insurance contributions payable and that – together with tax relief – means net contribution rates can be reduced to less than 2% for an employee and 3.5% for an employer.
Decisions now have to be made, but the fact that the plumbing industry has an arrangement set up specifically to cater for all operatives should provide a positive message that all employers and employees can take heart in.
As firms in the industry get closer to their staging dates for AE, Plumbing Pensions will provide relevant help and literature to members to ensure that they comply with the new arrangements on required issues. Employees already in the scheme need do nothing – in fact, they should be aware that this scheme offers benefits in excess of those that will typically be offered by new schemes designed to meet the requirements of AE. For firms not currently operating any pension scheme, the Plumbing Industry Scheme provides an excellent way to correct this.
Taking the first step
The first point that every employer should want to establish is exactly when their staging date is. Once this information has been obtained, it is possible to set a target based on the date by which many of the legal requirements must be in place.
All employers should appreciate that there is a lot of information to take on board when deciding how best to comply with AE legislation. Each employer will have their own reasons for making a particular choice but one of the main factors – if not the main factor – when reviewing how to proceed will undoubtedly be cost. For this reason, it is imperative that all aspects of a scheme are properly looked into.
For example, Plumbing Pensions – the industry-wide pension scheme – is open to all employed staff. On initial inspection, the gross contribution rates may seem higher than some of the other arrangements. However, it should be clear that this is not actually the case when the total packages on offer are considered. Some other arrangements may also have additional costs that are not so readily noticeable.
Employer benefits
Of course, cost may not be the only consideration. The ability to offer employees an attractive package that entices them to stay long term with the company that has financed all their training can be hugely beneficial in determining the ongoing success of both employer and employee.
This can now be your chance to ensure that solid foundations are in place at exactly the right time, which will set an appropriate level of benefits for you and your employees.