Uk Pension Reforms Will Give Smes A Headache

Copyright (c) 2010 Richard Barlow

Currently the UK has many people who reach retirement age without providing sufficient financial resources to support themselves through retirement. Combine this fact with an aging population and you have the recipe for a painful headache for the UK government and tax payer looking in to the long term.

The 2008 Pensions Act laid out the detail of the UK government's Workplace Pension Reforms intended to address the problem. The cornerstone of the reforms is a requirement for all UK employers to automatically enroll their employees in to some form of pension scheme unless the employee specifically chooses to opt out.

If employers do not offer their own Workplace Pension Plan (WPP) then by default they must adopt the governments National Employment Savings Trust (NEST) defined contribution scheme. The crucial fact is that all UK firms will have to offer some form of pension plan whether they like it or not.

Auto-enrolment will begin in 2012 with the biggest employers and will conclude by 2017 when all firms must enrol staff. The final two digits of an employers PAYE reference number determines when they must auto enrol employees.

Complexity and administrative costs mean small and medium sized enterprises often don't offer a pension scheme to employees. Soon this burden will have to be carried by these firms. Firms will have to make sure they contribute the correct amount in to their employees pension plans and modify their payroll functions to ensure the appropriate deductions are made from employee salaries. Miss-management of employee pensions could precipitate legal action.

For small and medium sized firms it will prove much simpler to outsource the implementation and management of pension and payroll arrangements to an accountant. Outsourcing payroll and pension administration is a simple solution to the complexities and associated risks created by being involved in a pension scheme. A suitably qualified accountant will have the technical expertise to accurately manage contributions and will be legally responsible for any errors. The accountant is also likely to be acting for numerous other clients who have outsourced payroll and pension scheme functions which will give them the requisite specialist knowledge, experience and tools to do so more efficiently and therefore at a lower cost.