Colin Lloyd, executive divisional manager of Reed Insurance, looks at the reforms being made to pensions –  notably the automatic enrolment of workers into pension schemes. With some organisations having to take part from 2012, Colin examines what is required of employers to comply with the legislation and the influence this will have on the jobs market.
With average life expectancy in the UK constantly rising, the percentage of the population that is retired is only continuing to grow.
To illustrate, in 1901 there were 10 people working for every pensioner in the UK. In 2005 there were 4 people working for every pensioner. And, by 2050 it is estimated that there will only be two workers for every pensioner.
To compensate for this, the Government has introduced the Pensions Act 2008. This lays the foundations for fundamentally reforming workplace pensions to ensure that people will have adequate financial support well into old age. Part of the reform includes raising the pension age to ensure that the state pension can better provide for those that are living longer.
However, the key change that will affect employers is the requirement for every employer to automatically enrol their workers into a pension scheme, to which the employer must also contribute. This is designed to guarantee that people have an additional income on top of their state pension, which will allow them the means to live comfortably during retirement.
Auto-enrolment
Beginning in 2012, every employer in the UK will have to set up a workplace pension scheme and offer it to their employees.
The employees that qualify for automatic enrolment will have need to:
Be at least 22 years old but not older than State Pension age
Earn more than the minimum earnings amount – likely to be £7,475 per year
Work in the UK
Each employer will be allocated a date from when the new duties will apply to them – this is known as their ‘staging date’. Staging dates will be phased, and when your business will qualify largely depends on the number of people in your company’s PAYE scheme.
The larger the company, the earlier you will need to comply: The largest employers will need to comply by the end of 2012, whereas staging dates for those with fewer than 50 employees will begin from 2014.
Prepare, prepare, prepare
With an estimated ten million of Britain’s workers eligible for automatic enrolment, companies must ensure that they allow enough time to prepare for the implementation of the new regulations.
The Pensions Regulator will send out letters to employers in advance of their staging date but Reed Insurance is urging employers to begin planning as soon as possible. To find out your provisional staging date you can go to www.tpr.gov.uk/staging. Once you have this guideline, the first step is to plan when and how you will assess your workforce for eligibility, as it unlikely that all will meet the criteria for auto-enrolment.
Other important steps include choosing a pension scheme that meets the qualification criteria, choosing how that scheme is administered and registering with the Pensions Regulator. You must also provide comprehensive information to workers about the changes that specifies how each individual will be affected.
Impact on the Insurance industry
While the implementation of this pensions reform will inevitably have an impact on employers in all sectors, for those in the insurance sector workloads will get a lot heavier from next year as the pensions industry as a whole has changed from a contracting market to one of potential growth.
Initially, there will be a rise in demand for advisers as businesses seek to choose the correct pension scheme and the right strategy to address the new regulations. This is likely to be felt across all scales of the industry, from independent financial advisers right through to bigger players. It will open up a wide range of opportunities for those looking to further their career in pensions consultancy.
Following on from that, businesses will also need more staff to manage the administration of their pension schemes. With many more workers eligible for pension schemes, keeping track of starters and leavers while ensuring payroll is managed effectively is going to be an ever-increasing task. We may see a rise in businesses employing more people in-house that can manage this process. This is likely to be alongside a rise in opportunities within outsourced employee benefits management providers that are more often used by smaller companies who do not have enough pensions activity to afford an in-house role.
A positive impact may well be felt within the Actuarial sector. The critical inputs from Actuaries into the fund calculations and administration of the new schemes that will need to be set up will be an invaluable shot in the arm, and may mean the migration of Actuaries from the pensions industry to the more sustainable GI and Life markets may well slow or reverse.
Things are changing fast for employers, but with the right advice and planning they will be able to implement these essential changes with minimum hassle. The important thing is to make sure that planning begins well in advance of the deadline, which will allow for any surprises that may come up along the way.
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