Auto Enrolment into pensions
Many members will be familiar with the fact that starting from 1 October 2012, employers will have to automatically enrol all of their employees into a pension arrangement. Employers with over 120,000 employees will have to fulfil their auto-enrolment requirements by this date and, as the number of employees reduces the dates gradually move backwards.
However, what few will give enough consideration to is how to cater for those employees whose own personal values or religion dictates that their pension savings should be invested in specific ways. The two most obvious examples of this would be for employees who have strong views about investing ethically (ie avoiding companies with links to anti social or non environmental practices), or for Muslims who wish their money to be invested in accordance with Shariah Law. Research from the DWP suggested that more than 1 in 4 people would be interested in using an ethical fund for pensions even if this meant the return could be lower, so there is a real need for employers to include this in their plans for auto enrolment.
The government’s NEST scheme for auto enrolment has an ethical fund link and a Shariah fund link, but both of these invest mainly in global equities and as such may be too high risk for many pension savers. Shoe horning employees into a single fund option is unlikely to be ideal for them and using the NEST option will force them to compromise their likely investment returns in exchange for sticking with their personal values or religion.
An employer will have the option to select a scheme set up specifically for their business, such as a Group Personal Pension (GPP) Plan rather than use the NEST solution. This demonstrates to employees that the employer has looked at a broader range of Pension scheme options and GPPs will typically offer a much wider range of fund choices for all employees, including those who want to pursue the ethical or Shariah route.
To do this, it’s best to employ the services of an independent financial advisory firm or employee benefits business, but remember that few of these are expert in the ethical or Shariah options. However, if you look carefully there are some firms which can help, and using such a company will ensure that not only are you fulfilling your statutory obligations about auto-enrolment, but also giving all your employees the chance to participate free of restrictions and with the best chance of delivering a strong investment return.
Simon Holt is Managing Director of G&E Wealth Management Ltd (incorporating Ummah Financial Planning), based in Leeds and York. Email email@example.com or call 07870 230535.
For further information and help we are holding a free event on 10 July at Irwin Mitchell from 8.00 10.00 to help employers prepare and plan for this legislation, see details here.
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