Fears that a new government will ‘tinker’ with pension legislation has made many UK businesses hesitant in communicating DC changes to staff as well as preparing for auto-enrolment.
Speaking to HR Magazine, Elliott Silk, pensions expert at financial services company Sanlam UK said that the upcoming election was creating uncertainty among SMEs, many of whom are due to implement auto-enrolment within the next twelve months. 50,000 companies are set to undergo auto-enrolment staging in 2015 with an additional 500,000 in 2016.
But Clare Abrahams, Head of Auto Enrolment at Aon Employee Benefits warned that delaying action and 'second-guessing’ changes that might come about following the upcoming election was a risky move for employers, not least because of the fines some firms were likely to face for not complying with the current legislation, in addition to notices to pay missed contributions.
“The legislation was developed to try and fill the gap between comfort and poverty in retirement. This is expensive for any government to fund and I would be doubtful that any new government would want to change the focus away from employers and individuals being responsible for their own outcomes,” she said.
Meanwhile, Rosalind Connor, pensions solicitor at Taylor Wessing warned that there was a ‘great deal of hesitancy’ among UK businesses in communicating DC changes to staff.
The changes, which were initially announced during last year’s budget, give defined contribution members more flexibility when withdrawing from their pension pots following retirement.
But as these changes don’t officially come into force until April, one month before the general election, employers are unclear what the implications will be under the new government.
“A lot of employers are caught between the uncertainty of not quite knowing what the final rules are, partly whether [or not] there will be political changes in the future, and partly [because] even what they’re doing now is uncertain,” Connor said. “If I were an employer, I’d be very nervous about saying something that turns out not to be correct."
Abrahams added: “Anyone over 55 could effectively cash in their whole pension post-April and in most cases this would not be encouraged and will have significant and detrimental tax consequences. As such, it could be seen as irresponsible to delay communications to staff that might assist them with these decisions – or at least alerting them to the fact that any bad decisions might have irreversible consequences.”
Summing up, she said: “There is one simple message that should be communicated above all else – no individual should rush to make a decision without first understanding the consequences. Whilst many individuals may still refuse to take financial advice due to the cost, they should at least be told where to access free information and support. The focus for any future government therefore should be towards further financial education.”
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