Pension Auto-Enrolment - Non-Executive Directors Beware!

Only this week we have had a number of discussions with clients, who hold non-executive directorships, who were unaware that by automatically becoming a member of a pension scheme they could seriously affect their own pension arrangements.

This is because of the roll-out of auto-enrolment pensions (a new law requiring every employer to automatically enrol workers into a workplace pension scheme).

We are therefore advising all of our clients who have substantial pension benefits, protected lifetime allowances (the maximum you are permitted to have in pension assets by value without a future tax charge) and have one or more Non-Executive Directorship (NED) roles to check this out with their respective payroll departments.  This is to ensure they are not automatically enrolled in a pension scheme.

There are exemptions in place that are likely to cover most NEDs, however our concern is whether our clients, and the companies they are working with, are aware of these exemptions.  If they are not, there is a chance they could inadvertently become members of a pension scheme.

For clients who have protected lifetime allowances (potentially uncapped), being auto-enrolled could result in the loss of this protection and a reduced lifetime allowance of £1.25m.  In monetary terms this could easily lead to a six figure future tax charge!

Please do give us a call if you are a NED and please click on the link below if you would like to learn more on this and other planning ideas to consider before 5 April 2014.

Click here for 10 Planning Ideas to do before 5 April 2014.

Antony Summers
Private Client Partner

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

So whose advice is it anyway?

The moral of this story is: whoever you select as your ‘first port of call’, they must be a Trusted Adviser who will co-ordinate/facilitate and bring together the most appropriate legal, accounting and financial advice you need.

 

The background to this blog began in 2004 when professional advisers ‘depolarised’ to make it easier for clients to understand who they should turn to for specialist advice.  

 

Regulatory bodies have since ‘tinkered’ with these parameters, by introducing “Alternative Business Structures” (ABS), creating a layer of uncertainty for clients.  

 

In the commercial world, “ABS” permits non-lawyers to work in legal practices and as such offer the potential for clients to be benefit from a ‘one stop shop’; legal/accountants or legal/ financial services or a mix of all three under one roof.  

 

By way of an example the Co-op is licensed by the Solicitors Regulatory Body to offer legal services and it is proposed the Institute of Chartered Accountants of England and Wales (ICAEW) should be licensed to file Probate work.    

 

As a result your options are more diverse - but less clearly defined.  

 

So, in order to square the circle who should you speak to?   

 

At BROADSTONE we put our clients’ financial planning first working closely with their other professional advisers to bring about the best results – perhaps we can help you.

 

 

 

 

Helen Wilson

Consultant

 

Telephone:  +44 (0)20 7893 3456

Email:  getintouch [at] broadstoneltd.co.uk

And there were gardens bright with sinuous rills

Over the last couple of days two statistics have been reported that we really should take note of.  Firstly, unemployment in the UK dropped to 7.1%. Quite apart from the fact that this is good news for everyone in work and seeking work, it is important because it is a another step closer to the 7% unemployment rate that Mark Carney, Governor of the Bank of England, has said would be one of the preconditions for an interest rate rise.  Secondly, the Government has published its findings that over the last year, take home pay has risen in the UK.  Finally today we have seen that growth in the UK is at its highest since 2007, with an annual growth rate of 1.9%.

 

 

More people in work, and people getting paid more is the rich soil in which the seed of inflation grows. The strimmer of inflation, to stretch my analogy further, is interest rates.  So we seem to have taken another big step closer to the interest rate rise that we have known is coming for some time.  Higher interest rates are bad for the prices of gilts and corporate bonds, better for savers, and importantly will be of great benefit to defined benefit pension schemes and those purchasing annuities. However, I personally don't think that interest rate rise is coming imminently.  The green shoots of economic recovery have only just started to appear and like the daffs in my garden could be easily snuffed out by an icy blast. In my opinion, growth needs to be bedded in before it is reined in.  Comments from the Bank of England and Vince Cable seem to bear this out with the Governor playing down chances of an interest rate rise yet.   So we might have several months of cheap money, lower unemployment, and economic growth ahead. Everything in the garden seems rosy....

 

Matthew Phillips

Managing Director

Telephone: +44 (0)20 7893 3456
Email: getintouch [at] broadstoneltd.co.uk

Qualifying Earnings - Confused?

OK, this one’s a technical blog, but I’ve tried to keep it jargon lite.

Why “Qualifying Earnings” (QE) just became an important term for you to understand. If you’re not familiar with it, you need to be, because it’s one of the key criteria around which auto-enrolment is based.

When the legislation was put in place, the employee assessment and minimum pension contribution level was built around this concept of QE – this isn’t just the basic pay of an employee but takes into account bonuses, commissions, maternity pay etc.

What’s confusing is that you don’t have to pay the pension contributions on QE if you don’t want to, you could just pay them on basic pay, but you still have to assess the eligibility of the employees for auto-enrolment on the Qualifying Earnings basis. This could catch you out like this:
 
An employee earns £729.10 per month, below the auto-enrolment trigger level of £787.

This month she is being paid overtime of £94.22 and bonus of £60.02, both these amounts are not pensionable. 

But as her Qualifying Earnings are £883.34, she is now over the auto-enrolment trigger and needs to be enrolled – despite her pensionable pay being less than the trigger level.

Confused? You’re not the only one.  These are real figures from one of our clients who used their payroll provider to do the assessment and then checked the figures to find out that 30 of their employees who had earned bonuses this month were now eligible, but wouldn’t have normally been.

Make sure you understand the difference between how to assess your employees and what pension contributions to pay because they might be different.

Rob Barksfield
Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456
Email:  contactus@broadstoneltd.co.uk

State Pension Age Rise – An Insight into the future

The Chancellor recently announced that the increase in State Pension Age needs to be accelerated. This throws up some huge challenges for society.

 

Individuals must plan

We’re all going to be working longer and the temptation to allow the powerful forces of both procrastination and lack of foresight to do their worst and put off saving for the future is a strong one.

If individuals want to cease working sooner then pension planning actually becomes more relevant, rather than less so, when providing that replacement income.  Individuals must decouple the rising State Pension age with the time to cease working completely.

Pensions must adapt...

 

Government policy and the financial services industry must do a number of things now to stem this:

• Financial education in the schools to actively espouse the benefits of long-term savings in to a pension scheme.

• The Government needs to re-open the debate on early access.

• Pensions may have to end and become something else so they can be accessed for other socially helpful purposes such as health care provision. Or defer your tax-free cash as an invested lump sum to help. Or why not let a pension scheme run a retirement home for its pensioners. Part of the pension can be an income and another proportion of the pension could be accommodation and health care.  

Savers need to be encouraged to save and understand that it’s their responsibility to provide for themselves in their dotage. 

Employers - the front line

Employers are going to be at the front line of this problem. I am all for removing restrictions and allowing individuals more flexibility in their lives. However, there is a risk that employees will not be able to afford to retire.  Succession planning will falter, younger employees will be held back as older colleagues remain in the workforce and businesses will under-perform and potentially fail.

David Brooks
Pensions Consultant

 

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Got your employee email addresses? It's crazy not to.

Over the past few months of working on auto-enrolment projects, we’ve turned up one piece of information that most employers have space for on the payroll file, but few are ever filled in - employee email addresses. Unless you have electronic payslips, they’re mostly a nice to have on a payroll file aren’t they? Not for much longer…

The default communication strategy for the majority of UK pension providers is email. For them it’s simply a matter of cost, the fewer paper communications they have to send out, the less money they have to spend on auto-enrolment. So their default is to send as much as they possibly can be email to your employees. If you want to send paper statutory notifications to your employees, you have to print & post them yourself (another job you didn’t want!). Don’t forget that these communications are a legal requirement so if you don’t send them out, then you’re liable to get fined.

So having employee emails on file, whether work or personal, will make your life so much easier.
 

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Plan the dive, dive the plan.

This is a little bit leftfield for an article about pensions & auto-enrolment, but I want to talk about scuba diving today.

I’ve had an odd career path, but I started out years ago as a maritime archaeologist and consequently spent a lot of time diving in the UK and the Baltic. Before you ever get near the water for a project, you plan as thoroughly as possible, because once you’re underwater you only have a limited period of time in which to get a lot done. Plus, if you get it wrong there’s a good chance of damaging yourself.

Obviously there are some parallels to auto-enrolment planning. Most employers don’t leave themselves enough time. We recommend six months planning in the lead up to implementing auto-enrolment. We’ve just completed a project for a 700 employee company that staged on 1 November. They were a straightforward client, but the auto-enrolment planning that we did in the first three weeks was crucial. It seemed time consuming and it’s not as exciting as the actions of getting everything done, but it is hugely important to understand how much auto-enrolment will impact on your day to day processes.

There will be a huge amount of work to be done to get ready for auto-enrolment, but take the time to plan what needs to be done and do it properly. Incidentally, the client has said that this was the “smoothest project we’ve ever put in” – it’s all in the planning.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk