New pension arrangements could have a positive impact on firms, explains Ian Luck.

It was never actually in doubt but, having gone through an independent review, the Government is proceeding full steam ahead with the implementation of fundamental changes to the way in which work-based pensions are to be provided in the future.

Until now, the provision of pension benefits for staff has been at the discretion of the firm, with the exception of the requirement to have in place a stakeholder pension scheme that employees can join if they so wish. The new legislation will change this voluntary approach to retirement savings, with the requirement for every employer to make pension provision for its staff.

Auto-enrolment

Employers will have to enrol automatically staff into a pension scheme; either a private arrangement established by them, or a centralised arrangement being set up by the Government known as the National Employee Savings Trust (NEST). Once enrolled, members who do not want to remain within the scheme can opt out. However, for all those who stay, the firm must then make contributions on their behalf.

Larger firms must implement these requirements from October 2012; and all firms will be affected by October 2016, by which date their contribution will be set at 1% of their employees' salaries. This will then increase by 1% each year for the next three years so that, from October 2017, employers will be paying 3% pension contributions for their staff. Employees will have to make contributions as well, which the employer must deduct from salary and pay across to the scheme.

These changes are deemed necessary to address the problem, highlighted by the department of work and pension's own figures, that some seven million people in the UK are not currently making any provision for their income in retirement. So, by automatically enrolling staff into a pension plan, and repeating the process every three years for those who opt out, it is hoped that inertia will eventually ensure members remain within the schemes long enough to accumulate a reasonable level of pension provision.

Assessing the impact

Many firms will just see the additional cost and added layer of administration as another example of the Government passing the burden of implementing the social changes it deems necessary on to employers.

However, by embracing these changes, particularly before they are forced to do so, firms may have a great opportunity to engage with their staff in a positive way.

Recent research, undertaken by an occupational psychologist on behalf of Standard Life, revealed that most employees accept that state pension provision will not be sufficient for the standard of living they are looking for and that, ultimately, financial responsibility lies with themselves, and not with the state or with their employer. The problem they face is where to turn to for help. They tend to look to their employer for guidance in such matters, and would genuinely welcome support from their employer in making decisions. Interestingly, the research also revealed that employers consider it part of their role to assist their employees in securing their financial future.

Adopting these pension changes willingly, and early, will help firms to be seen as supportive of staff. This will undoubtedly help with recruitment and retention – two-thirds of employees say they would be attracted to an employer who offered help with financial planning. So, perhaps employers can also benefit from these important pension changes.

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