Pension Auto-Enrolment And Protected Trust Deeds
1st August 2012
What Is Pension Auto-Enrolment?
Concerned about a lack of retirement saving in the UK, the Government has introduced new rules. Over the next couple of years employees will gradually be subject to auto-enrolment into pension schemes organised by their employers. In October this year it’s expected that ten million employees will be auto-enrolled into contributory pension schemes.
All workers (except the self-employed) aged between 22 and retirement age, with earnings above £8105, will be auto-enrolled into such a scheme. Between October 2012 and February 2014 all employers with more than 250 employees will have to auto-enrol their employees into such a scheme. Between 2014 and 2018 smaller employers will follow suit.
These schemes will require monthly contributions to be made by the employee. The monthly contributions by the employee to the pension will gradually increase over the next few years.
Pension Auto-Enrolment For Persons In Protected Trust Deeds
Many employees will welcome pension auto-enrolment, especially those with relatively flexible budgets that allow them to set aside a modest sum each month (and benefit from an employer contribution and tax relief).
Persons that are currently in a protected trust deed do not have a very flexible budget. The initial 0.8% contribution of some schemes might be possible for some people to absorb as an extra cost, but some schemes that employers are setting up require a much higher employee contribution. For example, a 3% contribution for someone earning £1500 per month would be £45 per month.
Individuals that are in protected trust deeds, and who are being auto-enrolled into pensions, therefore have a decision to make. If the payment can be absorbed into their budget they may be pleased to be saving for their retirement (with help from the Government and their employer). If the payment cannot be absorbed, individuals may consider that they need to opt-out of the scheme.
How Will Trust Deed Firms React To The Pension Auto-Enrolment Of Clients?
It remains to be seen how trust deed providers will view their clients contributing to such pension schemes. There is likely to be some variance from trustee to trustee. Therefore, people that are concerned about this issue will want to contact the office of their trustee to discuss the matter.
It seems unlikely that a trust deed firm would object to an existing client making a modest contribution to a pension provided that it does not disrupt their continuing payments into the current debt arrangement.
Where a client finds that pension auto-enrolment means that they can no longer manage their existing Scottish trust deed payment, the trustee may take a different view. The client may need to choose between opting-out of the pension scheme or alternatively perhaps reducing their monthly trust deed payment in return for an extended payment term.
New Trust Deeds In The Future
Individuals approaching Scottish insolvency practitioners in future years are likely to already be signed-up to auto-enrolled pension schemes. By 2018 they are likely to be contributing 4% of their salary. For an individual with a £1500 per month salary this amounts to £60 per month, or £2160 over a three year trust deed.
Will the creditors be prepared to accept a continued contribution to such a pension scheme, or will they expect the individual to opt-out of the pension in order to be able to pay back the extra £2160 towards their debts?
The position is currently unknown, but it seems likely that an understanding will develop between the major creditor organisations and the trust deed industry over the coming years. This understanding, whatever it is, will enable insolvency practitioners to best advise a client what will be required to achieve the creditor support needed for a protected trust deed.
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