1. Workplace Pensions: The impact on
people who employ carers
By Chris Gardner, wealth adviser with Towry
Individuals who directly employ carers will be affected by
the introduction of workplace pensions. We explore em-ployers’
responsibilities, explain the potential impact on
the financial position of elderly clients who receive care and
consider how they might tackle the administrative burden
of offering a workplace pension scheme.
What are workplace pensions and why have they
been introduced?
Workplace pensions formed part of the Pensions Act 2008
which affects all employers in the UK. The demographics
which contributed to the change in legislation will be famil-iar
to all practitioners dealing with elderly and vulnerable
adults. Put simply, the number of pensioners is increasing,
despite moves to raise the pension age.
Between 2010 and 2030, it is estimated that there will be a
5.2 million increase in people aged over 65 and government
spending on people of state pension age has already soared
by £18bn since the first of the “baby boomers” started to
draw their state pension at the age of 60 in 2005/06.
Workplace pensions are occupational schemes with obliga-tory
enrolment (in certain circumstances) and minimum
contribution levels for both employers and employees.
They were introduced in 2012, with various implementa-tion
dates, depending on the number of employees. Em-ployers
with less than 250 eligible jobholders must imple-ment
the schemes between April 2014 and October 2017
(referred to as the staging date). New employers will have a
later staging date of 2018.
The clear benefit of workplace pensions is that they ensure
every qualifying worker will have some personal pension
provision to help meet their needs in old age. One of the
drawbacks is that elderly people who directly employ car-ers
are caught by the rules. So how will workplace pensions
affect them?
The effect of workplace pensions
Employers will be required to automatically enrol eligible
employees into an “appropriate” qualifying scheme. How-ever,
employees can choose to opt out of their employer’s
scheme for a period of 3 years before being auto-enrolled
again by their employer. Eligible employees are:
t employed
t aged between 22 and state pension age
t earning above £10,000 and working in the UK.
Once the earnings trigger has been met, contributions will
be based on earnings between the national insurance lower
earnings threshold (£5,772) and the upper earnings limit
(£41,865).
This could cause a real headache for elderly clients who
want to employ carers directly, rather than use an agency,
but who have no experience of being an employer. It is also
likely to affect attorneys, deputies and trustees who employ
carers on an elderly or vulnerable person’s behalf.
Elderly or vulnerable clients (or their legal representatives)
will not be exempt from the legal responsibilities and the
increased cost of making contributions to workplace pen-sions.
8 SFE Newsletter November 2014

2. What are employers’ responsibilities under the
workplace pension rules?
Between now and their staging date, an employer must:
t establish who is an eligible jobholder
t choose an appropriate qualifying workplace pension
scheme
t select their default fund and review payroll systems
t register with the regulator and provide workers with
information about the scheme selected
Once the scheme is in place, an employer must:
t automatically enrol eligible jobholders and make con-tributions
on their behalf
t keep accurate records
t re-enrol previously opted out employees
t review the default funds
t be responsible for ongoing governance and oversight
of the pension scheme.
The employer must offer a qualifying pension. This could
be an existing or new scheme that meets the specific cri-teria,
or the National Employment Savings Trust (NEST).
NEST is a new pension scheme that provides members
with a single pot that they can keep contributing to even if
they change employers or stop working.
The chosen scheme must meet minimum contribution
levels (outlined in figure1); must advise staff of auto enrol-ment;
must not require the employee to make any decisions
or provide any information.
All of this is likely to be overwhelming to an individual who
is unable to care for themselves, let alone be in a position to
meet legal obligations as an employer.
So what might be the answer?
In reality, an elderly or vulnerable person who directly em-ploys
carers will have 2 options:
1. Establish their own pension scheme, or
2. Use the NEST scheme to meet their responsibilities as
an employer
Establishing a pension scheme is likely to take time and
require the individual to take (and pay for) advice. This
is unlikely to suit an elderly or vulnerable individual, but
it might be appropriate for a professional who runs a care
regime.
NEST does not separately charge employers to use the
scheme but there will be a charge on all contributions
(1.8%) and an annual management charge (0.3%). Further,
NEST offers a range of funds and offers a retirement date
fund which is managed to a member’s likely retirement
date.
The NEST scheme is built for automatic enrolment and has
a wide range of guides, templates and communication re-sources
to help new employers. This might be particularly
helpful for those who directly employ very few carers and
more information on establishing a NEST scheme can be
found at www.nestpensions.org.uk
Who meets the cost of workplace pensions? – The
winners and losers
The winners will include eligible employees of working age.
The workplace pension rules should ensure they have some
private pension provision when they eventually retire and
their employer will be obliged to help them fund it.
The losers will include all employers and this extends to el-derly
and vulnerable people who choose to employ carers
directly, rather than via an agency.
In terms of what this might cost, we have a number of cata-strophically
injured clients who have had to include these
costs in their claim. For example, one claimant required
a care regime directly employing 5 carers. Based on a re-sidual
life expectancy, it was calculated this would cost ap-proximately
£25,327.
Whilst few elderly clients are likely to require a team of five
carers, this does illustrate the wider impact workplace pen-sions
can have on elderly and vulnerable clients.
An obvious consequence of the new rules is that many el-derly
clients, who previously employed their carer direct-ly,
will start using an agency instead. It will then be the
agency’s responsibility to enrol the eligible employees into
a workplace pension and it will be interesting to study the
resulting impact on agency care fees.
Please note that Towry specialises in providing financial
planning services and investment management services and
does not offer advice to employers regarding the suitability
and implementation of workplace pension schemes.
Figure 1 - Minimum contribution levels
Min % contribution
employees must pay
Min % contribution
employers must pay
Min % contribution that
must be paid in total
October 2012 to September
2017
1% (incl. tax relief) 1% 2%
October 2017 to September
2018
3% (incl. tax relief) 2% 5%
October 2018 onwards 5% (incl. tax relief) 3% 8%
SFE Newsletter November 2014 9