PENSIONS
This course highlights employer’s challenges, responsibilities and obligations to all parties involved with pensions and auto enrolment, to enable compliance. Automatic enrolment and pensions for payroll
Africa
three-month window from commencing their new job to arrange to: ● transfer the funds to a new fund, or ● indicate they wish them to remain under the management of the old fund provider. If the employee fails to do this after three months the funds are automatically claimed by the new fund to be managed by them. So, no more accruing multiple small pension pots, with the aim being to drive down the cost of managing pension funds. Norway has another interesting concept for supplementary pensions. It’s known as the AFP scheme and is specifically provided for those who are covered by a national collective bargaining agreement. The purpose of the fund is that it’s aimed at those who do physically demanding jobs, and it’s designed to provide a bridging pension for those who wish to retire between the ages of 62 and 70. In effect, it aims to replace the income available from the state pension. Premiums are covered one third by the state and two thirds from the employer. As retirement ages are pushed up by the state, this is one practical way to ensure those who are physically worn out by the work can retire at a time that’s right for them.
The concept of AE has also reached Africa. The Pension Reform Act 2014 in Nigeria made it mandatory for employers to provide a pension, although the wording of the Act sometimes causes confusion. The Act clearly states that it’s mandatory for any employer with 15 or more employees and goes on to say that employers with one or two employees may join a scheme. But it’s completely silent on what the position is for employers who have between three and 14 employees. The legislation requires a minimum employer contribution of 10% with an employee contribution of 8%, providing a substantial savings pool. A new hire is required to appoint a pension fund administrator with whom a retirement savings account is opened. This isn’t always top of the employee’s priority list, and the employer is required to hang on to funds deducted from salary until it’s done. If the employee fails to appoint an administrator within six months of commencing employment, the employer must appoint a default administrator and enrol the employee into that scheme.
Types of pension schemes Automatic enrolment
The automatic enrolment processes Contributing to the pension scheme The implications on tax Implications to payroll Automatic enrolment and TUPE Communicating pensions Auto enrolment compliance Penalties and reviews of compliance
Finland
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CPD 7 points
The BigMac index
Many countries will mandate that pensions must be provided but leave it up to the employer to choose an appropriate fund for their employees. The Finnish Pensions Act requires employers to contribute 16.95%, with a further 7.15% from the employee. The statutory scheme can be met through many insurance companies – in effect, a large chunk of what we would deem to be NI has effectively been privatised. Employers have the option between monthly and annual earnings reports to the chosen pension company, with annual reporting being the norm. The employer pays contributions to the insurance company based on invoices issued by them. So, there is usually a reconciliation process to perform matching deducted amounts on payroll to the insurance company’s invoice.
Finally, a terrific way to consider the true value of pensions in a country is through the Big Mac index. Just how many Big Macs will the monthly minimum pension buy in a country? At £3.39, the UK state pension buys around 229 Big Macs in a month. That contrasts with 148 in Sweden, 190 in Finland, 305 in Norway and a whopping 370 in Denmark. Think of that next time you consider a top up to your pension pot! n
| Professional in Payroll, Pensions and Reward | April 2022 | Issue 79 28
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