Considering 11 million people that are alive today are expected to live to 100 — one in six of the population, according to the Department of Work & Pensions — saving for retirement has never been more relevant.
So it’s no surprise that the most radical reforms ever seen in workplace pensions are set to take place next year, and affect every employer and employee in construction and beyond. At present, the take up of pension schemes in the industry and its allied trades is low — only around 30% of eligible staff participate in a retirement savings scheme.
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To address the problem the government is introducing changes — commonly known as auto-enrolment — to encourage more people to save towards retirement. The changes mean that from October 2012 employers will have new obligations in respect of their employees.
The impact of the detailed and complex nature of the changes, particularly the compliance obligations, cannot be underestimated. Putting a strategy in place now will allow employers to decide how best to implement the changes and manage the financial and administrative impacts on their business.
So what does this mean for employers in the construction industry?
Based on information from the Office for National Statistics, B&CE estimates that the additional annual costs for the construction industry of auto-enrolling eligible jobholders into pension schemes could reach £390m by 2016, and £1.17bn by 2018. Even though the process will be staged, starting with larger firms in October 2012, this is a significant amount money to find.
Auto-enrolment requires all “eligible employees” or “jobholders” to be automatically enrolled into their employer’s qualifying pension scheme and make contributions into it. Auto-enrolment will apply to all employees aged between 22 and state pension age (SPA) and earning over the income tax personal allowance (£7,475 in 2011/12), regardless of employer size.
Employers will be required to:
- pay a minimum contribution of 1% from the applicable staging date rising to 3% of their band earnings into this scheme from 2017;
- offer a genuine opt-out procedure for jobholders and process any resulting refund of contributions correctly;
- keep records relating to the pension arrangements that have been made, the enrolment of members, opt in and opt out notices and contributions made to demonstrate to The Pensions Regulator that all duties have been fulfilled.
It is important to identify a relevant and trusted pension scheme provider as early as possible. Getting the right partner in place will allow an appropriate strategy to be developed and actioned. This will help identify and address the individual administrative and financial impacts facing the business and ensure that an effective long-term solution is established and put in place.
This has particular relevance to the construction industry due to the transient nature of the workforce and the need to budget now and in the future for projects when tendering for long-term contracts.
For the construction industry, this means working with a provider that will:
- provide access to a tailor-made, flexible and cost-effective pension scheme that is suitable for all employees;
- guide the business through the entire set-up process and any ongoing administration and provide information and guidance on pension consolidation, fund choices, salary sacrifice and more;
- support the ongoing education of the workforce.
Patrick Heath-Lay is director of finance and customer development at construction pension specialist B&CE. www.bandce.co.uk/
