In 1901 there were ten people of working age for every person who’d retired. A hundred years later, the ratio was three to one – and by 2050 the Department for Work and Pensions estimates that there will only be two people of working age for every person receiving a pension.
Given that not every person of working age will be working, the message is simple: you need to provide for your own retirement, as the government simply will not be able to do it for you.
The problem is, of course, that far too many people in the UK (particularly in the private sector) have not been providing for their retirement – and faced with a potentially catastrophic burden on the public purse. So the government has acted with the much-heralded ‘auto-enrolment’. This new requirement for businesses to offer employees a pension was introduced in October 2012.
It started for those with over 120,000 staff, and by 2017 auto-enrolment will be introduced for all business sizes. As the co-operative sector is made up of a large number of smaller and medium enterprises, the time to act is now.
The rules state that anyone over the age of 22 and earning more than £10,000 per annum had to be enrolled in a ‘qualifying’ company pension scheme operated by their employer. (Note: there may be some exceptions and those that are not eligible must have facility to join qualifying scheme.)
The government is committed to this legislation being successful and there will be stringent penalties for non-compliance.
As mentioned above, the timetable has already started for large employees. Medium sized employers (which the Government defines as having 50-249 employees) will have to start complying from April this year. Those employers with 49 or fewer staff will start to fall into the net from June 2015 until May 2017 when all firms should have a scheme in place.
To begin with, the contribution levels required by auto-enrolment will be relatively low, starting at 2% of an employee’s pay (with the contribution split between the employer and the employee). Initially, the government’s focus is on making sure everyone is enrolled in a pension scheme. But the minimum contribution rises quickly, so that from October 2018 it is 8% of an employee’s pay.
What will auto-enrolment mean for employers? We believe there are three main points to consider:
- Firstly, there is compliance. Irrespective of how many people a business employs, doing nothing is not an option. Employers will have to comply, and we’d very much advise against leaving it to the last minute. There is bound to be a backlog of schemes waiting for paperwork to be completed on the relevant ‘deadline day’. There is simply no point taking the risk of not having a scheme in place.
- Secondly, there will be an administrative burden, especially for employers with a high staff turnover. There are going to be some sectors of the economy where the administrative burden of auto-enrolment will prove a serious headache. We’d advise all employers to make their payroll and HR procedures ready for auto-enrolment.
- Lastly, there will be cash-flow considerations – perhaps not immediately, but for many employers adding 4% to payroll costs by 2018 (plus the cost of administration) will be significant.
Co-operative Wealth is currently helping many co-operatives, credit unions and charities through this minefield. For example, we have recently worked with Unicorn Grocery Co-operative, Essential Trading Co-operative as well as The Plunkett Foundation.
The biggest question to date from co-ops has been: “What is the most ethical provider?” Here, you can break providers into two categories – non for profit and group personal pension providers.
There are four main non for profit providers: The People’s Pension, NEST, Now Pension and The Workers Pension Trust. Most of these have an ethical portfolio and have details of these portfolios on their websites.
It’s important that a co-op fully reviews these funds, including how ethical the portfolio is, how much risk is associated with the fund, the charges and also the performance.
Then there are the larger group personal pension providers, including Aviva, Standard Life and Royal London, which is a mutual and fits well with the co-op ethos. These will generally have a larger fund range and a member could have the option of choosing a range of ethical funds.
Co-operatives can look at the different websites and see which ones potentially match their values and objectives. Or they can contact an independent financial adviser.
As a general rule of thumb, if a co-operative has part-time/casual workers then the non-for profit providers may be the most suitable option. NEST for example has to accept every employer/co-operative, no matter what the contribution level is. Meanwhile, other co-ops that have a higher balance of full-time workers may be looking for a more diversified pension provider.
It can be a daunting task, but there are ethical providers out there to support co-operative values.
The pension providers chosen by co-operatives
The People’s Pension
A multi-employer scheme with independent trustees, operated on a not-for-profit basis by B&CE charitable trust. It is a portable workplace pension suitable for any organisation, large or small, in any sector. It is the largest private sector pension scheme in the UK with over 1.2 million people auto-enrolled.
Telephone: 01293 586637
The National Employment Savings Trust has been set up by the government especially for auto-enrolment. It has a mission to make sure that every employer has access to a workplace pension scheme that meets the requirements of the new pension rules.
Telephone: 0300 020 0090
In collaboration with ATP of Denmark – one of
the largest pension funds in Europe – Now works with its independent board of trustees as a new pension provider.
Telephone: 0330 100 3399
The Workers Pension Trust
Established in 2012, the organisation is an occupational, trust-based scheme pension scheme open to all businesses in the UK. The Scheme is governed by a board of 11 trustee directors, and is jointly administered by Construction First Ltd and JLT Benefit Solutions.
Telephone: 028 9087 7142
The mutual is owned by its members and has been in operation since 1858. In 2013, it acquired the life and pensions business from the Co-operative Group, which brought £20bn of assets under its management. Last year it moved to the single Royal London brand.
Telephone: 0800 195 1000
In this article
- ATP of Denmark
- Construction First Ltd
- Department for Work and Pensions
- Financial services
- Independent Financial Adviser
- JLT Benefit Solutions
- National Employment Savings Trust
- Now Pension
- People’s Pension
- Personal pension scheme
- Plunkett Foundation
- Royal London
- Standard Life
- The Co-operative Group
- The National Employment Savings Trust
- The Workers Pension Trust
- Unicorn Grocery Co-operative
- United Kingdom
- Top Stories