Pensions and retirement. Words that conjure up thoughts of finishing work and hopefully enjoying a long and fulfilling part of your life, which for many is something that feels a lifetime away. For employers, it may be considered a burden, a hassle or perhaps an unwelcome and unnecessary cost.
But the reality is that even if there may be many years between now and then, it has never been more important for employees to start saving towards their retirement early, not just for the individual, but the employer too.
Many of you reading this may be aware of auto enrolment, which came into force in 2012. In a nutshell, it’s a Government initiative that requires all employers, regardless of size, to offer a workplace pension scheme and enrol eligible employees into it. Simple? Yes and no. While there are certain criteria that employees must meet in order to be eligible, it becomes an altogether more complex matter when it comes to the maritime industry. Discussion on who can be deemed ‘ordinarily working in the UK’ has led to the recent government review of auto enrolment as it applies to maritime offshore workers. Then we have the 4.8 million self-employed, a category that many in this sector fall in to. These individuals fall outside of auto enrolment legislation, which in turn means only 16% are contributing to a pension scheme via auto enrolment, compared with 66% for ‘employees’* – a scary prospect for the future of our maritime workers.
But it’s not just the UK government that has increased the focus on financially preparing workers for retirement. Australia, The Netherlands, Italy, Turkey, Ireland, Guernsey and Alderney all have, or are introducing some form of compulsory pension arrangement, through industry or the government. This is clearly a trend that is set to continue.
So why do your employees need a pension scheme?
Your employees need a pension because at some point they will want to retire and need to be able to support themselves financially. While many people may be entitled to the state pension, whether it offers enough for a person to comfortably live on is a different story. It is widely agreed that it will be wholly inadequate. There is also no guarantee of what may become of the state pension in thirty or forty years’ time.
And why a pension scheme over any other form of savings vehicle?
For employed UK taxpayers, it is arguably the best later life savings vehicle we have available to us in the UK. A key benefit of saving through a pension scheme over all other savings vehicles is tax relief. Tax relief is provided on any contributions an employee makes to their pension scheme, subject to certain limits. Investment returns within a pension scheme are exempt from income tax and, when benefits are drawn, 25% of the value can be taken tax-free with the rest being subject to income tax.
To demonstrate the tax relief on contributions, if an employee contributed £50 a month, and an employer matched this £50, the employee receives £100 a month in their pension pot. Thanks to the tax relief received on these contributions however, the cost to the employee is only £40. (Note this example is based on the “net pay arrangement” operated by Ensign.)
But what benefit does it give me as an employer?
A pension is an integral and highly valuable part of an overall compensation package. It not only helps attract good people to the workforce, it can help retain them. Ensign’s research showed that 96% of maritime employees believed a pension to be an important or very important part of their overall employee package. In fact, it was ranked third behind salary and annual leave as the most important factor in choosing to select or remain with an employer.
Employer contributions to a pension scheme are not subject to National Insurance, presenting a cost saving to employers compared with salary. As pension contributions can be treated as an allowable business expense, employers may also be permitted to offset these costs against their corporation tax bill. So, in times when it’s hard to increase overall wages, a good quality pension package can offer a valuable tool to attract employees at less cost.
But aren’t pensions a hassle to administer?
For the maritime industry the answer is ‘no’. Our industry has a dedicated ‘not for profit’ pension scheme – Ensign – which takes the administrative and legislative burden away from employers and offers one of the lowest annual management charges out there for employees.
Last week Ensign announced the onboarding of Stena Line UK’s defined contribution pension members, bringing total assets under management to over £100m. But, this scheme is open to companies regardless of size; meaning companies with just one or two employees can get access to the same benefits as those with thousands.
Members of the National Workboats Association are critical to the smooth running, of our maritime industry and our country as a whole. At Ensign, we would like to ensure the employees are rewarded for their hard work, and employers are free to focus on what they do best…keeping our maritime industry moving.
To find out more please get in touch.
www.ensignpensions.com or contact: firstname.lastname@example.org
Ensign – People first maritime pensions
Ensign is the only dedicated pension scheme for maritime employers. Available to any company with a connection to the maritime industry, and all their employees, it offers some of the lowest management charges in the pensions industry, thereby giving our members a great opportunity to save towards a comfortable retirement. It is fully compliant with UK auto-enrolment regulations and being not-for-profit is run entirely for the benefit of its members. Providing high-quality low-cost defined contribution pension provision, Ensign aims to be the go-to pension scheme for the entire maritime industry.
*Based on information from The Family Resources Survey data, published by the Department for Work and Pensions (DWP) for 2016/17.