What Pension Reforms Mean for You
The government is about to preside over one of the most significant overhauls of the pension system in recent memory. In a move that has garnered equal praise and criticism, the coalition has taken the previous government’s plans to introduce automatic enrolment in an occupational pension scheme even further than originally intended.
The changes will affect apprentices just like they affect every other employee. It is important that you understand the changes, either as an apprentice or as an employer.
What are the changes?Under the new system, every employer will be obliged to automatically enrol every qualifying employee in an occupational pension scheme. The intention is to encourage individuals on low incomes to save for their retirement, by providing them with automatic access to a simple pension.
As apprentices are generally counted as employees, it is likely that the new pension plans will affect you – either as an apprentice or as a business owner.
As an employer...If you currently employ apprentices, you need to understand how the changes will affect you. The new rules are likely to significantly increase the administrative burden you have to shoulder, and they will also increase your costs.
Every employee earning more than £7,500 per year must be automatically enrolled in an occupational pension scheme. This includes apprentices. You will then be expected to make contributions to the scheme on your employees’ behalf. You will have to contribute a minimum of 1 per cent of their earnings from 2012, and this figure will rise to 3 per cent from 2017.
There is a recognition that it is impractical for the smallest businesses to set up their own proprietary pension schemes. It is therefore expected that so-called ‘micro firms’ will instead make use of the government’s National Employment Savings Trust (Nest). This is a low-cost means by which you can fulfil your legislative obligations.
As an apprentice...In most circumstances, as an apprentice you will also be counted as an employee. This means that you have a range of rights.
The date from which you are entitled to be automatically enrolled in an occupational pension scheme will depend on the size of the company for which you work. If the company employs fewer than 50 people, your entitlement will be phased in from October 2013; if it is larger, your entitlement will begin earlier.
You can expect your employer to make contributions to your pension on your behalf. But you will also be required to contribute to the scheme. Those contributions will begin at 1 per cent of your salary, and will rise to 4 per cent by 2017. Contributions will almost certainly be deducted from your pay packet automatically using the PAYE system, so you won’t have to take any action.
Finally, you should remember that the original plans for pension reform exempted the very smallest businesses. The coalition government, however, decided that the requirement should extend to businesses of every size – so, provided your annual salary exceeds £7,500 you will be entitled to enrolment, regardless of the number of people employed by the company for which you work.
If you are in any doubt about your pension entitlement, contact the HR department at work, or speak to your local Citizens Advice Bureau.