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Changes to Pensions Law: The Impact on Employers

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The ‘Freedom and Choice in Pensions’ initiative which was effected on 6th April has made huge changes to the pension industry in the UK. An overhaul of the pension landscape is common and this current change does not only affect individuals but employers as well.

The changes started with the Pensions Act 1995 which reacted to the actions of Robert Maxwell. This was followed by the Pensions Act 2004 which introduced the Pension Protection Fund and added extra layers of regulation.

Changes and amendments to the laws and regulations of pensions had one outcome – increase in costs, both implicit in terms of management time and explicit in terms of adviser costs and funding. During this time, employers and their employees viewed the pensions as unimportant for two reasons:

• Low-interest rate environment coupled with volatile and depressed investment markets leading to poor growth and an increase in the cost of each pound of income.

• An ageing workforce – as this group of employees approached retirement, they were going to realise that they had to live more golden years with less money. This meant they had to continue working past retirement age whether they liked it or not.

Changes in Pension Schemes

Recent years have seen changes designed to make saving into a pension scheme more alluring and make retirement easier. These changes are:

• Auto-enrolment – which compelled employers to create and contribute to a pension plan for its workforce.

• The Pensions Act 2015 – it introduced the purchase of annuity where individuals who have contributed pensions do not withdraw their savings in a form of income but in any other form that suits them.

The two changes discussed above give employers a medium through which they can engage and motivate their employees. This helps in forward business management and failure to take advantage of this opportunity can result in stagnant, demotivated, and expensive staff.

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