New pension rule will puncture profits

Mark Twum-Ampofo

Will the government's new pension rules puncture profits?

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Advice on coping with the government’s pension plans

Moneywise

Last autumn the government introduced auto-enrolment. Under this new system, most employees will automatically become members of a pension scheme with a minimum set level of contributions.

Significantly, employers will now be required to pay pension contributions on behalf of their employees so, for the many practices that do not currently pay into a scheme for their employees, this represents an additional cost of employment.

The contribution rates are phased but by 2018 at least 3% must be paid by the employer. There are also fairly onerous administration requirements and, again, responsibility for complying falls on the employer.

Firms who already pay pension contributions on behalf of staff may just need to tweak their current arrangements, but for those who don’t pay into staff pensions this is a major change. The increase in the cost of employing staff is likely to hit profitability as continuing downward pressure on fees will make it difficult for practices to increase their rates to compensate.

The new rules are also likely to reinforce the current trend for practices to take on architects as freelancers where possible, as freelance staff will not be auto-enrolled.

Auto-enrolment is being phased in as of last October, based on the size of an employer’s payroll. Businesses will be contacted individually by the Pensions Regulator but larger practices are likely to need to comply with all aspects of auto-enrolment from April 2014, less than a year away.

It is crucial that practices determine early how this legislation will affect them and seek the necessary support and advice as soon as possible.

Postscript:

DISCLAIMER: This column is for general information only. It should not be relied on or treated as a substitute for specific legal advice relevant to particular circumstances. Neither BD nor the contributors’ employers accept any responsibility for the personal views expressed in this section.

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