It’s autumn 2015. Oil costs have continued to rise and replacement fuels have become increasingly expensive. Winter fuel payments for the elderly have remained unchanged for 10 years and the Government is struggling to meet its pension promises. The months ahead look bleak for those who retired on miserable pensions earlier in the millennium.
Against this backdrop, it’s hardly surprising that a company pension is “most appreciated”, according to the latest personnel survey at ‘Bloggit & Bloggit’. The pensions simplification of 2006 was all very well, but without the introduction of compulsory contributions by employers, it hasn’t done much for average workers.
Managing director of Bloggit & Bloggit, Ian Bloggit, says: “We look after our workers. Most of them are on the equivalent of national average earnings (37,224) or better. When it comes to pensions, we see them alright.”
Bloggit says he introduced an occupational money purchase scheme for a while after his final salary scheme was closed to future accrual, but one day asked himself: “Why am I paying for annual audit fees, trustee training costs and the expense of everyone’s time at trustee meetings?”
Soon after his observation, he replaced the scheme with a group personal pension (GPP). Contribution limits and the lifetime allowance have been the same for both types of scheme since April 2006.
So what can a Bloggit employee expect by way of a pension scheme? The company pays twice what its employees contribute, subject to a maximum company contribution of 10 per cent of basic salary. In addition, it pays an extra 1 per cent for every five years’ service up to 15 years, although employees are not required to match this.
A typical employee on basic earnings of say 40,000 per annum and 10 years’ service receives a total annual contribution into his or her personal pension of 6,800. Of course, the cost to the individual is less than 5 per cent, as relief from income tax continues to be available, although higher rate relief (where due) still has to be reclaimed separately.
Bloggit says the previous scheme had a tiered contribution structure that increased with members’ ages, but legal opinion when the GPP was introduced was unclear, and he didn’t want to risk falling foul of the law on age discrimination.
He also says that since contractual retirement ages disappeared nine years ago, his staff are working longer and enjoying a higher starting pension than before.
When asked why Bloggit & Bloggit hasn’t encouraged ‘salary sacrifice’, ploughing back some or all of the company’s National Insurance savings, Bloggit responds: “What do you think we are… a charity?”
But he appreciates that it could still benefit his staff, who will make at least their own National Insurance saving (albeit just 1 per cent in many cases).
Christopher J Murray is associate director at Smith & Williamson Pension Consultancy Limited