No putting off the preparations for pensions changes

For trading organisations both large and small, however, “tomorrow” will soon be on the horizon. Due to take effect from 1 October next year, the legislation will initially affect only businesses with a staff complement of 10,000 or over.

But by the beginning of June 2014, it will apply to all firms with less than 100 employees and the cut-off point will continue to be reduced progressively after that until it covers every business with at least one employee, which will be the case from 1 January, 2015. Only sole traders (who by implication do not employ others) will be exempt.

The move by the UK government is obviously in part a reaction to the “pensions crisis”, which those with a sense of irony might claim was, at least in part, caused by our political masters themselves – for example, Gordon Brown’s £5 billion-a-year tax raid on pension funds, which the coalition, since it came to office, has chosen not to reverse.

But complaining that employers are being forced to take a hit on something for which they were not responsible is a bit like crying over spilt milk.

The legislation is likely to become reality and given the huge financial (and administrative) implications, the need for companies to act very soon in understanding at least the basics should be patently clear.

From past experience of dealing with the increasing amounts of red tape that has been thrust upon business in recent years, it has become obvious that the smaller the company the longer it takes to react to legislation.

However, the changes proposed in this case are of such significance that pre-planning will be essential rather than just advisable. For this reason it was felt that a seminar to be held on the subject in Edinburgh on the 27 September was not a moment too soon in coming.

There has been a lot of criticism (much of it valid) by employer organisations about how changes and additions to employment law has increasingly lumbered businesses with “hidden” costs but some companies have, by the nature of the way they operate, been better able to deal with these more than others.

This is unlikely to be the case with the pension contributions legislation, which will confront every employer with an unavoidable upfront expense that cannot be “absorbed” within the system.

Although the proposals are designed to benefit company employees, rather than the Treasury, they will in effect be a levy on companies by any other name.

If the legislation is passed, every business in the UK (self-employed sole traders excepted) will find itself required by law to make a contribution to the pension fund of every employee aged 22 or over earning more than £7,475 per annum (at 2008 wage and salary rates).

The amount that businesses will be required to contribute (to an employee’s pension fund) will start at 1 per cent of qualifying earnings in 2012, rising to 3 per cent by 2017. The maximum level of “qualifying earnings” has been set at £33,540 per annum (again at 2008 levels).

Companies will need to automatically enrol anyone on the payroll (aged over 21 or under 65 or the state pension age) and those affected will be required to make minimum contributions of their own (rising over time from 2 per cent to 8 per cent) – so there will be no hiding place for the workers either.

And the government intends to wield a big stick aimed at companies who do not comply with the regulations – with large employers liable for escalating penalties of £10,000 per day. Criminal charges could also apply in circumstances where failure to comply is deemed to be “wilful”.

There are many issues for businesses to deal with, but prominent among these are the cost implications, the compliance dates and the legal dimensions. So too are practical concerns: as with any form of change to employee benefits, communication with staff is vital.

Seminar info is available by visiting: www.murraybeith.co.uk.

l Dawn Robertson is a partner and head of employment at Murray Beith Murray in Edinburgh