Early feedback from NEST CEO on new pension rules
Speaking at the Institute of Directors Conference recently , Tim Jones, CEO of NEST said:
‘From our experience with employers, it is clear that they need to give themselves as much time as possible to get ready. We recommend up to 18 months and advise they pull together a team from across the organisation who can help meet their duties.’
NEST is working with over 300 employers, with 100 of these being large employers in the first stages of implementing automatic enrolment. These include household names such as BBC, BT, McDonalds, NPower, Iceland and Travelodge, and employers from a wide range of sectors, such as Barchester Healthcare, Compass Group and Mitchells and Butlers.
Tim also announced four more names of employers to have chosen NEST for their automatic enrolment duties, namely: Balfour Beatty, Four Seasons Health Care, Spirit Pub Company and The Open University.
Reflecting further on lessons learnt so far, Tim drew attention to the need for employers to make sure they work with their payroll providers and in-house teams to get the ‘right data in the right format’.
Comment from 44 Financial:
It’s clear that to successfully deliver a compliant auto-enrolment project medium size employers will need between 12 and 18 months. If you have a staging date in 2014 you need to have started the project by now.
Auto-Enrolment–Webinar
It’s crucial that the way that automatic enrolment interacts with existing employment contracts is fully understood. The key difference is that contractual enrolment requires a worker’s consent to be enrolled into a pension scheme, whereas automatic enrolment does not.
Join Neil Esslemont and Andy Nicholls from the regulator’s industry liaison team as they outline the different processes for contractual and automatic enrolment.
This free webinar, on Friday 22 March at 11.00am, will include the relevance of opting out and postponement to these processes, communicating membership to workers, and identifying whether an existing scheme qualifies for automatic enrolment. There will also be an opportunity to ask questions.
Solicitor prepared will ruled invalid
The England and Wales Court of Appeal has refused to validate a Will involving a lady, Daphne Burgess, removing her son as a beneficiary under her will, even though the Will was apparently drafted and executed by an independent and experienced solicitor who had explained the contents to Mrs Burgess.
The deceased made a Will in 1996, when aged 68, splitting her estate equally between her three children, Julia (a former magistrate), Peter, and Libby. In December 2006, Julia arranged a meeting with a solicitor resulting in the drafting of a different Will leaving the estate to the 2 daughters only.
Peter and Libby were completely unaware of this until after their mother’s death in May 2009. They decided to contest the Will. The Court of Appeal found in their favour, ruling that their mother had lacked ‘knowledge and approval’ of the Will’s contents and Julia had been the controlling force behind the changes.
Hollow victory?
Although Peter and Libby were victorious, the entire £200,000 estate has been consumed by legal costs. Peter said, ‘This was never about money. I simply could not let the assertion stand that my mother, to whom I was very close, would cut me out of her will, and certainly not without talking to me.’
What does this mean?
This case demonstrates the fact that a Will may not end up being legally binding as, while under English law individuals are free to leave their assets to whoever they wish, the Inheritance (Provision for Family and Dependants) Act 1975 exists and allows certain people (including a spouse, former spouse, child, child of the family or dependant of that person) to bring a claim for reasonable financial provision if they feel it is justified.
Only 8% of Asda employees opt-out
According to the supermarket giant only 8 per cent of its eligible workforce opted-out of the new rules on pension enrolment. Asda was one of the first UK employers to reach it’s staging date.
According to Asda the helpline they set up got calls from about 3% of the workforce during the opt-out period. Asda had conducted a comprehensive communication programme designed to explain the changes and emphasise that this was not a pay cut.
This level of opt-out is well below the 20-30% predictions we have seen. Only last month the consultants to the largest employers who had reached their staging date were quoting opt-out rates of up to 10%.
Local Govt Pensions–give a little and take a lot?
The recent change to the state pension scheme could be bad news for employees and most employers who participate in the Local Government Pension Scheme,
Here’s the rub. The explanation is going to get a wee bit complicated – but I guess that this being an article on pensions it goes with the territory.
What’s the problem?
Sometime before 2017 contracting out of the State Second Pension will stop. No one is exactly sure when but that is par for the course with some of these changes.
When this happens it means that employees who are members o
f pension schemes like the Local Government Pension Scheme will pay more National Insurance.In today’s money that extra will work out at 1.4% of their earnings between £5,564 and £40,040. In return for paying more the employee will get their service counted towards the new single-tier pension of £144 per week that was announced recently.
Do higher contributions mean higher benefits?
As you might imagine nothing is ever straightforward on planet pensions. In pension terms we are kind of looking at an apple and a pear.
However, fear not; our friends at the Department for Work & Pensions seem to think that employees will benefit. Their white paper claims that around 90% of all contracted-out employees will be better off in value terms.
We can probably safely assume that the 10% that don’t benefit are the higher earners.
The straw and the camel
Clearly, there’s a danger that this could be the last straw for some employees when these higher outgoings come at a time of increased household bills and zero pay rises.
Members have already been asked to pay more towards the Local Government Pension Scheme in recent years. Higher earners will pay more for their benefits from next year. Some members are already considering opting out to boost their take home pay in tough times.
So I’m not entirely convinced that the DWP are right when they say that employees will benefit from these changes. What about those that can no longer afford to be a member and opt out or those who will opt to join the less generous 50/50 Scheme (as and when it appears).
What about Employers?
It’s worse news for Employers I’m afraid. Employers will end up paying 3.4% more in National Insurance.
In the Local Government Pension Scheme the Employers are unlikely to be able to pass this extra cost on to members. So it must be passed down to council tax payers (if the Employer is a Local Authority) or met from further efficiencies .
But what about those Employers that are Admitted Bodies to the Local Government Pension Scheme? Where can they find the extra cost?
Many Admitted Bodies are signed up to long term contracts that were negotiated without an allowance for this extra charge. Traditionally, membership of the Local Government Pension Scheme is high amongst employees of these Admitted Bodies. So this is going to hit them hard.
Could we see some outsourced contracts being in jeopardy? If not, then some form of cost cutting and possible redundancies would seem likely.
Is there some stability on the horizon?
Probably not. Having been in the industry for over 25 years I can’t recall a period where there has been anything other than constant change. One thing is clear though all Employers – and especially those Admitted Bodies in the Local Government Pension Scheme – need to keep an eye on the horizon to make sure they know what’s on the horizon. As I’ve said more than once on this blog over the last two and a half years – watch this space.
Steve Clark