Posts Tagged ‘National Employment Savings Trust’

Pension reforms may lead to lower contributions

We know that we have gone on a lot this week about automatic enrolment and the impact that this will have on employers. For those of you that haven’t been paying attention we’re talking about the automatic enrolment of workers into a workplace pension scheme. It all get underway from 2012.

Here is a link to an article that the Daily Telegraph published yesterday.

You’ll see that there is a growing concern that the new rules will simply lead to cash strapped employers reducing more generous contributions down to NEST levels. Our research bears this out. We have come across two employers only recently that were paying upwards of 10% of salary to employees that joined the pension scheme.

With a pension take up of less than 30% in both cases they are worried about the huge cost of including the 70% of non-joiners in such a generous pension scheme. Both are thinking about introducing a NEST category (3% of Qualifying Earnings) to save them from that hit.

There is, we believe, a real danger that the Law of Unintended Consequences will kick in. We’ll find that although more are saving up for retirement there’s less going into the pot in total.

What do you think?

Photo courtesy of Flickr: Tu Foto con el Presidente

Financial Times: Auto Enrolment will reduce profitability, deter investors and stall mergers

The FT published an article on Sunday by Debbie Harrison – one of their pension experts – that shows that the mainstream press are beginning to wake up to the impact that auto-enrolment and NEST will have on UK employers. It’s well worth a read.

Auto Enrolment will cost employers £5.5bn a year

We don’t think that any of the statistics and research quoted in the article is scaremongering by any means. Those close to the government within the pension industry have long been saying that NEST and auto-enrolment will cost UK employers billions. Even the CBI reckon that it’s going to cost UK employers well over £5bn per annum when you take into account the additional cost of administering this pensions monster. It’ll hit the bottom line for employers and, according to the FT, could deter investors and stall merger activity. That should make a few Finance Directors sit up and take notice we suspect.

At 44 Financial we’ve talked to our clients for some time about the impact that auto enrolment will have on them – looking at the direct financial impact as well as the indirect  internal admin costs. Pleasingly, most of our clients and contacts are unlikely to cut the existing level of contributions downwards to match the least that NEST requires.

Levelling down of contributions

However, there are many employers who have in place a pension plan that is far more generous than NEST – often as a result of the closure of a final salary pension scheme. Automatically enrolling employees into these plans, when they already been offered membership have decided not to join, would have major cost implications for some employers. Our work with not-for-profit and third sector employers is a good example of this as contribution rates tend to be in excess of NEST but pension take up very low.

Some industries such as retail are very likely to end up with a two tier pension provision with NEST as the basic offering and possibly a more generous contribution level after a period of service. This kind of strategy would make sure that scarce resources are used to reward those in the organisation that are making a difference in the long run. During the period of potentially high staff turnover the employer pays the statutory minimum.

What’s your NEST survival strategy?

In summary it’s a very good article bringing together what pensions professionals, including 44 Financial, have said for some time. This year really is the year when employers must start to look at their NEST survival strategy.

If your existing adviser remains silent on NEST and auto-enrolment and how it will impact your organisation 44 Financial would be delighted to help. We are currently offering the first consultation in our Benefits Roadmap at our own cost to the first 20 employers who contact us. The Benefits Roadmap will, among other things, look at the impact of NEST and auto-enrolment.

Auto-enrolment is the biggest threat facing the most businesses in the next 12-36 months. Doing nothing is not an option.

Email us now at – what have you got to lose?

A casual acquaintance or a rude awakening?

You know nothing ever seems to stay still in the world of pensions and benefits. As unbelievable as that may sound it’s not such a sleepy backwater anymore. The pace of change has really hotted up over the last ten years or so. We are seeing more and more case law and litigation which contests and re-defines large chunks of the status quo.

Not only is there UK legislation to think about but we also have the input from European Legislation on top.  As if that wasn’t enough the plethora of Ombudsmen (I have no idea what the plural of Ombudsman is!) that we have in financial services and pensions also have their say.  It’s for that reason that the old fashioned role of the “pension adviser” has had to change.

The Role of the Adviser

Historically for most smaller employers the adviser would “look after the pension scheme” which basically meant providing a basic level of admin support to the employer and signing up new joiners and dealing with leavers and retirements. If you were lucky they also looked after your group risk benefits and, even rarer still, your private medical care. That model gives you the employer no protection whatsoever. No one has the job of keeping the employer on the straight and narrow and making sure that you comply with all of the legislation and regulatory changes.

I’m glad to say that things are changing and there are a growing breed of advisers, like 44 Financial, who see their role as part of the team of business advisers who keep the employer on track. The old aspects of admin and basic advice and information for members are normally still in there as part of the service. It’s really that the principal role of the adviser has been redefined – and for the better.

The Daily Telegraph Case

What, you might ask, has this got to do with me? A recent article in Employee Benefits magazine highlighted the growing number of workplace disagreements. You can read the full article here. The interesting part for me was the Case Study that explained the judgement against the Daily Telegraph in the case of acworker who had been termed a “casual”. You can read the Case Study here.

Most (but by no means all!) of the benefit eligibility criteria that exist today have been amended to take out any discrimination on the grounds of age, gender or part-time employment. Your employees on fixed term contracts have also been accommodated after the UK introduced rehulations to comply with the European Directive.  Chapter and verse on the regulations is here. However, the vast majority of employers that we have worked with still exclude employees who work on a “casual” basis. Admittedly it doesn’t affect every employer but you’d be surprised when you speak to employers how many temporary employees they have from time to time. If you have employees like this are they excluded from your benefits package if they don’t come under the Fixed Term Regulations?

This initial Employment Tribunal judgement in the Telegraph case ruled that the employee was entitled to the full package of benefits. It has now taken a further judgement from the Pensions Ombudsman to rule that access to the Pension Scheme should have been granted.

I can only guess that as time goes on and employees become more aware of the benefits provided and their entitlements that this type of case will increase.

Where do we go from here?

We’ll be talking to our clients about the use of temporary or infrequent employees to gain some idea of how widespread the issue is. It’s likely that we will recommend that some clients take advice from their employment law advisers.

It’s almost definite that we’ll recommend that changes are made in the long run to the eligibility criteria for various benefits.

That’s what we’ll be doing for our clients. What is your adviser doing for you? We’re currently offering, at our expense, an initial consultation for our Your Benefits Roadmap programme to the first 20 employers who subscribe. If you want to find out more and how this could not only save you money but keep you on the straight and narrow please contact us at