The benefits of change

By Ian Luck, Employee Benefits Director at Smith & Williamson

The Government is bringing in some fundamental changes to the way work-based pensions are to be provided in the future.

Until now, providing pension benefits for staff has been at the discretion of employers – except for the need to have in place a stakeholder pension scheme that employees can join if they want to. The new legislation will change this voluntary approach to retirement savings. In the future, every employer will be required to make pension provision for staff.


Employers will have to enrol staff automatically into a pension scheme – either a private arrangement or a centralised arrangement being set up by the Government known as the National Employee Savings Trust (NEST). Employees can opt out, but for all those who remain enrolled, the employer must make contributions on their behalf.

Larger employers must implement these requirements from October 2012; and all employers will be affected by September 2016, by which date their contribution will be set at 1% of their employees’ salaries. This will increase by 1% in October 2016 and a further 1% in October 2017, so that employers will then 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.

Assessing the impact

Many businesses will 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 business.

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

Recent research from 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 for their future well-being lies with themselves, and not with the state or with their employer. The problem they face is where to turn to for help. They therefore tend to look to their employer for guidance and genuinely welcome support from their employer in making these complex decisions.

Adopting these pension changes willingly, and early, could help smaller businesses generate goodwill with their staff. This should, in turn, 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 it’s not all bad news and employers can also benefit from these important pension changes.

To discuss the impact or opportunities surrounding the new pension regime, call Ian Luck on 020 7131 4212 or email ian.luck@smith.williamson.co.uk

Free reviews for entrepreneurs and growth businesses – Register now

Watch the video below featuring Guy Rigby discussing how to manage cashflow in your business.


Join us on