The time is now…

An article in the Times today (20 Jun 2011) has raised the issue of the development of a two tier occupational pension being provided by companies. Those of us well versed in the machinations of the UK pension industry would probably say ’so what else is new’ but maybe for some readers of this blog, it needs a bit more explanation. So here goes:

As we all hopefully know, starting from 2012, employers will be required to auto enrol qualifying employees into some sort of pension arrangement and pay contributions into it. For many particularly smaller employers, this will be something of a shock if they have never had to contribute to a pension scheme in the past. For the very smallest companies, there will be a default option called the National Employment Savings Trust or NEST. For others, they may wish to simply use their existing arrangements (if they have one) as long as it qualifies by providing a certain minimum standard of provision especially contribution rates. But many of the medium to larger companies particularly in those industries that have a high turnover of staff may suddenly be facing a vastly increased bill as more employees who may not have been ‘eligible’ to join schemes in the past (or indeed may not have wanted to) suddenly do.

So, what’s the answer? For some, it would seem to be to establish a type of ‘feeder’ arrangement whereby a scheme is established providing only the bare minimum that it needs to in order to qualify. Only if an employee stays for a given period of time will they then be able to join the main scheme that provides a far greater level of benefit and contribution. Or they may be offered NEST for perhaps the first couple of years – again providing a fairly meagre level of pension savings but better than nothing at all.

For those with a work history of low paying peripatetic employment, the reality of retirement will still be pretty poor. But it will still be better than reliance on the State. And for the employer, perhaps a more manageable cost. There are a few other ideas being bandied about too including setting up industry wide schemes akin to the Dutch model.

But more worrying of all is the lack of engagement and communication at the moment together with a certain amount of ostrich like behaviour!! 2012 is getting closer all the time and while for some, the staging date process will mean a formal start date of 2015, it can take well over a year and maybe closer to two to get things up and running. The time to start planning is now.