Gov to develop workplace pension plans for all

Tuesday 18 October 2022

Plans to make all businesses in Jersey, including those with just a couple of people on the payroll, set up a pension scheme for staff, have moved a step closer following a new commitment from ministers.

It will mean that both employee and employer will be legally required to contribute to a scheme that will provide an additional source of income in retirement.

In her recently published Ministerial Plan, Social Security Minister Elaine Millar said she would “develop a policy framework for a statutory workplace pension scheme” to improve financial wellbeing in old age.

Dealing with the island’s ageing population – with the number of pensioners set to grow rapidly in the years ahead, putting more demand on services, as well as the working population to fund pensions – is one of the Government’s principal priorities over the next four years.

In establishing a statutory workplace pension, the Government is following many other jurisdictions, including the UK, Australia, New Zealand and Singapore.

Guernsey is further ahead than Jersey and is set to introduce a mandatory scheme in 2024.

Deputy Millar said: “I want to develop options for improving financial wellbeing in old age with the public, employers and other interested organisations next year.

"The options were published in the independent expert D3P Global’s research report in April with the main options explored being developing mandatory saving provisions in workplaces; auto enrolment into workplace pension schemes; improving the Social Security system and boosting existing workplace pension plans.

“I will be having further discussions about these topics. Once this has been completed, I will then be in a position to share more details.”

Pictured: Mandatory workplace pension schemes are designed to give islanders more choices at retirement.

The model being proposed in Guernsey, which Jersey is likely to keep a close eye on, will apply to every employee paying Social Security contributions. 

While staff will be automatically enrolled, the system is only ‘semi-compulsory’ in that employees will have the choice to opt out. However, their employer will need to re-enrol those opting out again periodically.

The split in contributions is roughly 1/3^rd employer and 2/3^rd employee, although this will be phased in over an eight year period, starting with both employer and employee each paying 1% of gross earnings, rising up to the employer paying 3.5% and the employee paying 6.5%, so a 10% joint contribution rate. 

Guernsey is also phasing in the scheme based on number of employees, with firms with just one employee having a couple more years’ grace before having to join. 

Pensions expert Mike Freer, who is Business Development Senior Manager at BWCI, said: “This is a big story because although many employees work for larger firms that will probably have an occupational pension scheme in place, there are many thousands of smaller firms who will be obliged to set one up. 

“This will clearly come at an extra cost to these businesses, and no one willingly wants to forego income for something that they may not perceive they need, particularly when costs are rising across the board anyway.

“However, it is the right thing to do because people will not always be able to rely on the state pension, particularly if they want to retire when people are retiring now, rather than when the state pension kicks in, which could be when people working now are in their 70s.

“It is definitely advantageous for an employee to participate - with 20% tax relief, for every £80 you put in, you actually get £100 at retirement. So, if your employer matches your contribution, for every £80 you pay, you get £200 of benefit. That is a good deal."

The 20% relief is not an immediate benefit but appears in an individual's tax coding for the following year. 

Mr Freer said: “For an employer, it comes out of profit-before-tax, so there is a financial benefit to paying £100 in pension rather than as a wage.

Pictured: All businesses in Jersey will have to provide a workplace pension scheme to staff, if the Government forges ahead with plans.

"Companies like BWCI already offer workplace pension schemes through established providers and have the advantage of being able to negotiate lower management fees.

The Chamber of Commerce in Jersey represents the interests of businesses. Chief Executive Murray Norton said: “I think the key words from the Minister are ‘developing a policy’. 

“Chamber has and will be further consulted and the detail at the moment is really not there to comment on much further. It is, of course, absolutely right that plans for longer-term savings and the provision of pensions are explored and Jersey Chamber continue to consult with the department on this and anything that has an impact on businesses.”