12 April 2016 10:00
Do your staff know about state pension changes?
Employers are being urged to tell their staff that they'll see a fall in their take-home pay from this month, when the state earnings-related pension scheme (Serps) is abolished and a single flat rate pension is introduced.
The Chartered Institute of Personnel and Development (CIPD) is warning that the end of the state second pension (as it is now known) means many people will see a 1.4% drop in take-home salary.
It says around five million public sector employees at or approaching state pension age, and 1.5 million in the private sector, will have to pay higher rates of National Insurance equivalent to an additional 1.4% of earnings. The average drop in pay has been calculated at £37 per month.
Salary costs to employers will increase by 3.4% per affected employee. This is expected to cost private sector employers £1.2bn this year, while employers in the public sector will face a bill of £2.7bn.
The CIPD says many employees are not aware of the changes. The elimination of Serps - called the state second pension from 2002 - began on 6 April. It is set to net the Government £5.5bn by 2017, according to the Treasury.
Jo Thresher, Head of Money at Work at Jelf Employee Benefits, told the CIPD:
"The ending of the state second pension has probably gone largely unnoticed by most employees and employers. While this flat-rate pension seems sensible and much simpler, it's not without its complications and drawbacks for older workers, and employers would do well to educate this group to ensure they are on track for the retirement they are expecting."
According to pension specialists Aegon, the self-employed will be the "big winners" from the Government's new flat rate state pension. Self-employed workers will be better off because they will now get the same £155.65 a week pension entitlement as everyone else.
Previously, freelancers were excluded from the additional earnings-related pension so their maximum possible state pension was £119.30. The new single-tier pension offers those who have paid full rate National Insurance contributions (Class 2 for the self-employed) for 35 years or more the full rate of £8,000 a year.
However, the Institute for Fiscal Studies (IFS) is warning that about 62% of workers who retire in the next four years will get less than the full £155 flat rate. It has warned that many could be in for a "nasty surprise".