Pension changes will bring extra cost for employers

Employment costs will rise by up to 3% with the introduction of Government compulsory pension provision for employees over the next few years.

The changes will be introduced gradually, starting from 2012 with large employers, followed by medium-sized and then small employers with a final deadline for all to be in place by April 2017.

From 2012, employers with more than 250 staff will have to enrol eligible employees in a pension and make minimum contributions to the scheme. While employees will be able to opt out, they must initially be entered into a scheme.

Tax relief will be available on the contributions and there will be a government pension scheme called the National Employment Savings Trust for employers who do not want to choose or set up their own scheme.

Contributions will be at 3% for employers, 4% for employees and a further 1% will be contributed as tax relief.

Even though the deadline for smaller employers sounds a long way off, farmers should prepare and plan for how they will meet the extra administration burden and cost of this obligation, said Shelagh Hamer of NFU Mutual.

The scheme would mean that some family members who were employees would also have to be enrolled, even though provision may already have been made for them through investments other than a pension scheme, she said.

There was no reason why employers should not start a plan sooner than the deadline. For those who already have a pension scheme or plan to set one up as a result of these obligations, they must provide terms at least as favourable as NEST, said Ms Hamer.

Eligible employees will be those aged at least 22 years old, earn more than £7475 a year, have not yet reached state pension age and are not already in a suitable pension scheme.

Other employees will be able to opt into the schemes, including those aged from 16 to 22 and who earn more than £7475 a year. Those between state pension age and 75 who are earning more than this will also be able to opt in and get employer contributions. Those earning below £7475 may also opt in but will not automatically be entitled to a contribution from their employer.