Question: What needs to be done to help employers that are currently without an occupational scheme meet the requirements of the new rules? Are personal accounts the best option or could group personal pension alternatives offer a better solution?
Edmund Downes, Aviva: The first thing to understand is the reason why the employer is without a scheme at the moment. If the employer is disinterested then it may not be worth pursuing them, as Personal Accounts may well be the answer for them. If this is the case the Delivery Authority and Pensions Regulator will ensure that all employers are aware of what they need to do to be compliant and the options available to them. Although Financial Advisers may wish to assist employers to understand their future liability, unless they are not currently your customer there will be no fallback on you for not giving them all the information.
If the employer would prefer to place their employee's pension contributions with a private supplier, rather than a pension product associated with the government, then a Group Personal Pension or Occupational Pension could be equally suitable. Preference to the specific type of scheme shouldn't be changed in the future. Indeed, the DWP are trying to ensure there isn't any obvious bias, so if a GPP would be the current vehicle of choice that choice should remain valid for the future. If an occupational pension is currently preferable it should remain equally so in the future.
We don't know precisely what will make a compliant alternative. However, you can be reasonably sure that all current marketed products will be amended (unless it is impossible) from the providers' perspective to make them suitable and compliant. In particular, many schemes will need to comply with the rules about auto-enrolment, which will mean that they will adopt a new joining process and have a default fund. However, the cornerstone of what is a compliant, or Qualifying, alternative is the level of contributions made. To avoid the liability of having to make contributions into Personal Accounts, the employer must be making contributions of at least 8% of banded earnings into their Qualifying scheme. If they don't, then irrespective of how good the alternative scheme could have been, the fallback position is that the employer still is liable to make payments into Personal Accounts. Unless the employer is committed to make the payments at the minimum for part of their workforce, then perhaps Personal Accounts would again be a better bet.
Jamie Clark, Scottish Life: Right now, some employers may just be trying to survive the recession and many may think 2012 is far enough away not to worry about yet. But with such potentially expensive and onerous changes, at the very least they should thinking about the impact on their business, and possibly including this in their business plans and budget projections.
Whether a private pension plan or personal accounts is the better solution will really depend on the size and makeup of the company and the employer's attitude to workplace pension provision. For example, it's conceivable that those employers with mainly short term contract employees will use Personal Accounts. Quite simply, there is less value to be gained by providing a better scheme for employees who won't be there long.
But there are compelling reasons for many employers to set up a better scheme. Even the most basic group personal pension scheme will have many advantages over Personal Accounts, such as:
•· If employers offer only the basic Personal Accounts, how will this be perceived by employees?
•· Providers can work with the employer and their adviser to build member communication strategies
•· Providers can also work with the employer and their adviser to ensure the smooth implementation of the scheme
•· It can help provide a competitive edge in the recruitment market
•· Employers will have more control over their own pension scheme
•· Group personal pensions can offer more investment choice and, very importantly, a properly governed default lifestyle fund
•· Employees are not restricted to an annual contribution limit, which is particularly relevant to the higher paid
•· And crucially, employers will have access to individually tailored ongoing professional advice.
Employers may also want to consider setting up a scheme before 2012. This can help manage and spread the costs. For example, they can start at a nominal contribution rate, say 1% matching, then ramp up from 2012 to keep the scheme 'qualifying'. Building in features such as salary exchange can also help reduce costs.
Some employers will auto-enrol employees into Personal Accounts. Some employers will offer something better. Which would you rather work for?
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