Employee Benefits Report For Financial Directors – June 2008

Employee Benefits For Financial Directors June 2008 coverNews
Experts predict 2012 pensions admin hike
New law alters IP plans
FDs flock to bulk pensions buyouts

Employer profile
New perks drive change strategy

Weigh up the benefits of perks over cash salaries
The move to a DC plan can be costly
Conflict for FDs sitting as trustees
How employee stress puts your organisation at risk
Better returns via health trusts
Share schemes can be vital to retention
Routes to curb fleet user excess
Flex can trim spend

Drive sales and boost profit using incentives technology

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Editor’s comment

If there is a key benefits issue that I feel financial directors need to take heed of at this point in 2008 it is the impact that personal accounts will have on your reward and payroll budget.†

Personal accounts are new pensions arrangements that come into effect in 2012. If the Pensions Bill – the vehicle for their introduction – goes through unchanged (and there is no reason to expect it to be significantly altered), then the level of contribution most employers will have to put into pensions will jump dramatically in four years’ time.†

You may be aware that personal accounts will compel employers to introduce auto-enrolment, with the employee being allowed to opt out. In addition, under the proposed rules, for an employer to be exempt from offering (and making contributions to) personal accounts, they will have to run an occupational pension scheme that meets stringent rules, including auto-enrolment of staff. In turn, staff who chose to opt out will have to be auto-enrolled every three years – the government hopes that inertia will eventually rule the day and these employees will stop opting out.†

This will dramatically increase the number of employees who are members of pension schemes (in either personal accounts or conventional occupational pension schemes), and for whom employers have to provide a minimum pension contribution. The minimum level of contribution will increase incrementally from 2012 reaching a 3% employer contribution, a 4% employee contribution plus roughly 1% via tax breaks.†

However, a key point that many employers have yet to note, is that these pension contributions will be calculated on total pay (including commissions, bonuses, allowances and so on). In companies where variable pay is a significant portion of the reward deal, this will come as a shocking increase to overall contributions and affect both employer and employee contributions.†

If your HR are reward teams have not calculated what this will be costing your company from 2012 then they need a prod to get themselves up to speed with the implications of the incoming legislation, and take this into account in their budget planning. Not only do they need to have some serious conversations with the finance department, they will also need to start thinking about how they plan to tell staff about this change.

Debi O’Donovan

Editorial director, Employee Benefits magazine