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Onus falls on employers to prevent illegal working

The Immigration Asylum and Nationality Act of 2006, which came into force on the 29 February 2008 places employers under threat of substantial fines and even imprisonment if they are found guilty of employing an illegal worker.

More change ahead for Pensions in 2012.

If you have not already heard, there are some more radical pension reforms on the way in April 2012. It may seem like a long way off but you need to plan for this change well ahead of time! These changes could have an impact on your existing pension arrangements. We can help you assess the impact and plan ahead.

So what is happening?

As usual the fine detail is not yet known! In essence the Government is planning to bring in a new system for pension saving in April 2012 called “Personal Accounts”. They look set to be a basic product with several limitations but unlike Stakeholder Pension Legislation there will be a requirement for Employers and Employees to make contributions (3% employer contribution and 4% employee contribution plus 1% tax relief) unless the employee “opts out”. Therefore, you will need to budget accordingly from April 2012.

If you have a “qualifying scheme” you may be exempt from “Personal Accounts”. We have made some comments (see below) on the areas you may need to review in relation to your existing scheme in order to be “exempt”. The “qualifying scheme” criteria have not been finally defined but there are already some hints about what the criteria will be.

Personal Accounts – The Basics so far:

• They are the Governments latest initiative to resolve the “pensions crisis”.
• They will be established under the Pensions Act 2008
• The Personal Accounts Delivery Authority (PADA) will be responsible for the initiative.
• Proposed commencement date is 6th April 2012 and will be aimed at jobholders who are not a member of a pension scheme.
• Jobholders will be auto enrolled into the scheme unless they are already active members of a “qualifying scheme” or they opt out.
• “Jobholder” is defined as anyone with qualifying earnings aged between 16 and 75.
• Qualifying earnings are between £5,035 and £33,540 per year (2006/07 figures).
• “Qualifying earnings” include salary, wages, commission, bonus and overtime and maternity, paternity or adoption pay.
• Contributions will be a minimum of 8% of qualifying earnings and at least 3% must come from the employer.
• Contributions will be phased in over three years (2%, 5% then 8%).
• Those who are auto enrolled can opt out, and receive a refund, within an unspecified “prescribed period”.
• Those who opt out will be automatically re-enrolled at intervals of no less than three years.
• There will be a limit on the total amount of contributions that can be paid, current proposals are a £5,000gross per annum total contribution.
• Transfers in and out of Personal Accounts will not be possible for at least the first 5 years.
• The options at retirement may be restricted to annuity purchase via the open market option.
• Stakeholder “designation requirements will be removed when Personal Accounts are introduced.
• Nothing definite has been decided in relation to “Qualifying scheme” criteria.

Beckett Financial Services Ltd current view on Personal Accounts:

Personal Accounts look set to be a very basic product. Employees who want more than a very basic pension product should note the following restrictions of Personal Accounts:

• Very restricted/basic fund choice.
• Maximum contributions per annum of £5,000 gross per annum. Other pension arrangements currently allow much higher contributions than this e.g. £235,000 for 2008/09 tax year.
• A ban on transfers in and out will not give the flexibility and simplicity that some people desire.
• A restriction on options at retirement of annuity purchase only will mean that more flexible options are not accessible.

Personal Accounts may have a place for some Employers who employ a lot of lower earning employees or employees who require just a very basic pension product, but the detail is not yet clear.

If you already have a pension scheme in place, ensuring that your scheme meets the “Qualifying scheme” criteria will maintain the ability to cater for the needs of more sophisticated employees, while showing that you as the “Employer” is interested in providing a high quality Pension Scheme for your employees.

Beckett Financial Services Ltd current view of areas that may need to be addressed to meet the “qualifying criteria”:

Please note that as the “Qualifying Scheme” criteria has not been confirmed the following does not constitute advice and is our initial view on what areas you may need to address. In the meantime you may wish to begin considering the impact any changes you may need to make would have.

The areas of your scheme design that may need attention are shown below:

1) Waiting period for membership: There will be no waiting period for Personal Accounts. It is likely that a 3 month waiting period for a “qualifying scheme” may be acceptable. However, there has been some discussion that where there is a waiting period a higher level of employer contribution may be required. (Mike O’Brien, the Minister for Pensions Reform, suggested in a House of Commons debate that the minimum employer contribution where there is a scheme waiting period might be 6%. But this has not yet been finalised).

2) Schemes that are not open to all employees: Any employee who is not a member of a “qualifying scheme” will need to be auto enrolled into a Personal Account, therefore it is likely that to be a “qualifying scheme” you will need to ensure that your scheme is open to all employees and that they can be “auto enrolled” into it.

3) Schemes that do not make at least a 3% contribution for all employees: An employer contribution of 3% will be required for employees that are auto enrolled into Personal Accounts, therefore it is likely that to be a “qualifying scheme” a minimum employer contribution of 3% will be required, possibly more if there is a waiting period to qualify (see 1 above).

4) Schemes that do not have a requirement for an employee contribution: An employee contribution of 4% will be required for employees that are auto enrolled into Personal Accounts, therefore it is likely that to be a “qualifying scheme” a minimum employee contribution of 4% will be required.

5) Schemes where employees total earnings are higher than their basic salary but the employer pension contribution is based on basic salary: Personal Account contributions are currently proposed to be based on an employees total earnings between the upper and lower earnings level. This may present some challenges for employers that make contributions based on basic salary but where total salary could be higher than this.

6) Schemes where the employee makes a contribution via salary sacrifice: It is not clear if an employee contribution made by salary sacrifice (which in effect is therefore paid to the pension provider as an “employer contribution”) would count. Salary sacrifice schemes will need close attention.

Keeping up with developments:

If you would like to discuss this article or would like Beckett Financial Services Ltd to keep you up to date with developments please contact your usual Beckett contact point or alternatively contact Nicola Prince on 01284 773763 or email nicola.prince@beckettinvest.com

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