Turned On or Turned Off

by Barry Davys, Strathardle Asset Management

"Contract, what contract??". This is the statement that could have been put out in respect of the change to State Pensions. To be fair to Lord Turner who published the report, he has recognised the issue and has sought to deal with it by recommending changes to the state pension system be phased in over the next 50 years. But before you go thinking that you are "Turnered off" by these changes and that they will not affect me, or my business, read on.

Lord Turner's report has made a series of recommendations on how to fill the pensions gap. In outline they are as follows:

• Retirement age to be raised from 65 to at least 67 by 2050
• A New National Pensions Savings Scheme (NPSS) from 2010.
• Pension Contribution by employee of 5% of salary over £5,000
• EMPLOYER Contribution of 3%
• Auto Enrolment
• Self employed on a voluntary basis

Note that employers will have to start paying from 2010.

Should one consider this as another tax? As an employer I think that is possible to argue that it is. If your employee joins the NPSS, you have to pay. As an employee it is probably still fair to consider it as a tax. We know that auto enrolment with an opt out means that circa 80% of people will end up in the scheme by default.

The pensions report comes on top of the change to pension rules in April 2006. There is concern that the April 2006 date may be put back as a result of the Inland Revenue seeking to change (restrict) the options available after April 2006.

We will watch with interest on the new legislation, the Pensions Commission report from Lord Turner and of course we should not forget Europe who are also reviewing pension legislation.

The uncertainty from our "leaders" means that there is only one thing to do. Take control and make your own arrangements today.