Pension plans: Company pensions: the new ground rules

Why company pensions? It is estimated that around 4 million people in the UK workforce have made no provision for their retirement savings, despite companies’ offering attractive pension schemes. With an aging population this has been of growing concern in recent years.

How company pension schemes have changed

Company pensions must now comply with the following legislation:

• Compulsory workplace pensions to be introduced. This means that all employees will be automatically enrolled in company pension schemes within 90 days of commencing employment. Some stipulations apply, such as a minimum age of 22.
• Employees may choose to opt out of company pension plans. However, they will be automatically re-enrolled every 3 years.
• Any company that cannot offer an eligible pension scheme must enrol their workforce into the government’s new National Employment Savings Trust (NEST).
• Managers must make a minimum 3% contribution of every staff members qualifying salary, although they can choose to pay more.
• Combined contribution must make 8% (with employees making the rest of the payments)
• Company schemes will have a default investment fund.

In order to help smaller businesses accommodate and plan for these changes, the company pension reform has been phased in over a number of years:

What the 2012 pension reform means for you

Companies have hopefully been preparing for these changes for quite some time. In order to absorb the costs, some employers will have to consider reviewing their pay schemes or benefits packages. Some will have had to contemplate salary-sacrifice as a way of meeting the financial implications of compulsory company pension schemes. This means you may have already been approached by your employer regarding pensions and pay. This can only be a good thing as it promotes a healthy awareness of your pension and improves communication.

One thing it does mean is that looking at a company’s pension details could now become a very decisive factor in deciding on a job offer. For employers, offering an attractive occupational pension can demonstrate a commitment to staff and help achieve retention targets.

You can obviously still choose to opt out of a workplace pension and join at a later date. But the new laws are designed to make you take important decisions regarding saving for retirement now, which could help you take home more money and have a better quality of life during your retirement.