Employers are focusing on the effects of next year’s pension reforms, including how to mitigate any increased costs from compliance, says Debbie Lovewell
With the Pensions Act 2008 due to begin taking effect next year, employers must increasingly consider the impact it will have on their pension schemes and plan how to deal with any increase in costs that results from complying with the reforms. Just under three-quarters (74%) of respondents say complying with the reforms will increase costs for their organisation.
When the reforms take effect, they will introduce measures such as automatic enrolment to a qualifying pension scheme, phased compulsory employee and employer pension contributions, and the national employment savings trust (Nest) as an alternative savings vehicle.
But 74% of respondents say the reforms will not be a key reason for them to make any changes to their scheme. A further 10% say they will introduce Nest.
When it comes to communicating the reforms to staff, one-fifth (19%) of respondents have no plans in place to do so, while 14% have already begun this task. A further 18% say they will do so this year, while 35% will do so during 2012 and 9% plan to do so after 2012.
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The lowering of the annual tax-free pensions contribution allowance from £255,000 to £55,000 a year in April this year, along with April 2012's restriction of the tax-free lifetime allowance limit to £1.5 million has prompted some organisations to review how they remunerate higher-paid staff, perhaps offering alternative forms of reward alongside pensions. Staff further down the salary bands may also be affected by the changes.
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When the Financial Services Authority's Retail Distribution Review (RDR) comes into effect on 31 December 2012, commission payments from contract-based pension providers to advisers and employee benefits consultants will be outlawed. Employers will have to agree upfront how much investment advice will cost them, plus how they will pay for it, before paying a fee and/or commission to their consultant or adviser. This had led to concerns about the levels of financial education that may be made available to employees going forward.
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