Employers may do well to put any changes to their pensions schemes on hold until a decision is made this autumn.
As the government launches a review into Labour’s plans to introduce a new pension enrolment system in 2012, employers are being advised to put any changes to their pensions schemes on hold until a decision is made this autumn.
Clive Pugh, partner at law firm Burges Salmon, says: ‘As soon as they know where they stand, employers should not delay. But for the moment it is better to take a “wait and see” approach. There could well be further changes in terms of contributions, compliance and maximum caps. The hope for employers is that a concrete and detailed government decision is announced as soon as possible, so that they can put in place their pensions packages and administrative procedures in good time.’
Ian Bird, a partner at financial advisory firm Foster Denovo, believes that the government may be wavering because of the cost involved. ‘It knows people aren’t planning for retirement, but at the same time bringing it in now will push costs up massively: it faces a real dilemma.
‘For small businesses it may [sound like] good news that they won’t take a cash flow hit in a difficult market. But the reality is the government will have to do something about the amount of people not saving for their pensions,’ says Bird.
There are also business benefits to having a pension package, says Pugh: ‘For a company to grow effectively you have to incentivise people, and having a good pensions scheme is one way to do that.’
Bird agrees and says that a quality pension package could become one of the key attractions for employees, as people become more aware of the importance of saving for the future.
‘Look at your payroll and work out the cost implications of contributing 3 per cent or what is considered a quality pension amount of between 6 and 10 per cent,’ he counsels. ‘Any less and you’ve really got to question the value.’
For Bird the review shouldn’t act as an excuse for companies to ignore the issue, especially now that the number of people aged over 60 is forecast to rise by 40 per cent over the next 30 years. ‘Businesses should start looking at the cost implications as it will come at some point.’
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