In about 42 months’ time, the face of pensions in the UK will change completely, so now is the time to start designing a plan to help your corporate clients, says Andy Marchant from AEGON Scottish Equ

All employers in the UK, whether they have one or 10,000 employees, will need to take action to comply with their new responsibilities under pensions reform and the Pensions Bill 2008. We don’t know all the details yet, but we do know employers will have to automatically enrol their employees into a pension scheme and pay a contribution of 3% of qualifying earnings for every employee that doesn’t opt out. These two simple principles will completely change the face of pensions in the UK.

Decisions, decisions

Employers will have many new choices to make. They can either automatically enrol employees into their own private pension scheme or the new personal accounts scheme, currently being designed and set up by the Personal Accounts Delivery Authority (PADA). But this isn’t a stark choice – employers may choose one solution for one set of employees and another solution for a different set of employees.

Which solution they opt for depends on many things. Simple, quick and efficient administration will be paramount. Employers will have to be confident that administrators will collect the right contributions at the right time. The personal accounts scheme will very much be a ‘one size fits all’, and if the employer wants a service that differs from the one on offer, they’ll have to look to the private market for solutions.

Communications will also be very important. Again, personal accounts will have to concentrate on a generic offering. A company pension can be a very big part of an employee’s benefit package and can help build loyalty. If employers have to pay pension contributions, they might as well emphasise their input. They can do this by tailoring their communications through bespoke literature and/or bespoke company pension websites.

Consultations between government and the private sector are still ongoing and some of the detail for exempt schemes still has to be agreed. But one thing is clear – employers are going to need help to make their choices, and to implement them.

Start engaging now

Advisers should start discussing the broader picture with employers and discuss in general terms employers’ options. Pensions reform will mean an increase in takeup of existing pension schemes and this is the biggest cost employers face. They may want to start the process of automatic enrolment using streamlined joining in the run-up to 2012, to help spread costs.

The current proposal states that ‘qualifying earnings’ would be defined as an employee’s full earnings, including bonus, commission, overtime and statutory payments, but not P11d earnings. As an industry, we’re continuing to press for it to be changed to full basic earnings because it is at odds with the way most employers work, and could mean many administration and other challenges. If either employers’ or employees’ contributions are to be increased then starting this process as soon as possible will allow employers to phase in costs over a period of time and manage their cash flow through altering salary increases.

To have a more valuable discussion with your corporate clients, you’ll need access to all the relevant scheme information. For starters, you’ll need information on the current costs of contributions, how many members there are, what the scheme make-up is and what the admin effect will be, just to mention a few. Tracking down this information can be timeconsuming. It will be up to us, as providers, to make sure that we make this information available in as quick and user-friendly way as possible.

New responsibilities will bring new work and new costs, and the challenge facing advisers and providers in the run-up to 2012 will be to help employers manage this transition. Designing an implementation plan for the run-up to 2012 is a crucial part of helping your employers to stay on the right side of the law, and to manage their pension costs.