Business Essentials: It's time Infinity started a pension scheme

A small firm wants to help its staff in a way that isn't an occupational hazard to its cashflow, finds Kate Hilpern

Pensions are becoming a headache for everybody. The Government has called on workers to boost their retirement contributions and now employers are wondering how to bridge the enormous deficits in their occupational pension schemes.

Pensions are becoming a headache for everybody. The Government has called on workers to boost their retirement contributions and now employers are wondering how to bridge the enormous deficits in their occupational pension schemes.

But what about those firms - particularly small and medium- sized ones - that want to set up a scheme but don't know how to go about it? John Manning-Smith, managing director of Infinity Training, a provider of NVQs for carers working in homes, is among them. He explains: "I want to help provide adequate provision for our employees' retirement. But it seems incredibly hard. Surely the Government should make it easier for small companies like mine? Or perhaps it is easy and I'm missing something."

Essentially, he needs to know the simplest way of setting up a scheme that is both fair to his 10 staff and doesn't hit his own cashflow too hard. "Apart from myself, all the organisation's employees are women with many years' experience in the care sector, who have left jobs that might otherwise have provided them with a pension," he says. "They've come to us because we can offer them the flexibility in terms of hours and workload that their previous employer couldn't. As a matter of principle, I don't see why they should miss out financially in the long term because they've made that move."

Infinity Training, which is based in Hemel Hempstead, Hertfordshire, is currently meeting the legal requirement to provide a stakeholder pension, doing so through Legal & General. But the firm does not contribute to this. "It would be nice to have a system whereby we, as an organisation, were able to link into personal pensions that employees brought with them," says Mr Manning-Smith. "So the first thing I want to know is whether that's possible.

"I can think of schemes where we have helped employees make voluntary contributions to a previous company plan, but not one where they said, 'This is my personal pension. It goes with me wherever I go and I negotiate a deal with every employer about how much they can contribute to it.' "

If that option isn't possible, and he suspects it isn't, he would like to know why. "Surely that kind of ready mechanism is the most obvious solution to the current pensions crisis?"

Assuming he's right that this kind of "melting-pot pension" is not available, Mr Manning-Smith wants to know what is the best deal he can offer his employees. And finally, he would like to find out if there are tax incentives to encourage companies like his to offer schemes.

"We can't find a model whereby our employees don't lose out on building up, say, a 25-year pension scheme with a previous employer, and we don't make a financial commitment that we can't meet."

www.manning-smith.com

WHAT THE EXPERTS SAY

Stephen Pegge, head of communications, Lloyds TSB Business

"Mr Manning-Smith should look into group personal pension [GPP] or group stakeholder pension schemes. These are portable, allowing employees to build up their own fund that can be taken with them if they leave. They may also allow for transfers from certain types of pension in previous jobs.

"Mr Manning-Smith could also use the schemes to build stronger employee loyalty because he would be boosting their pensions. Contribution rates can be set at different levels - to reward length of service, say - and on a fixed-sum or salary-related basis. They can also be reviewed over time. This will give him further flexibility if his company's profitability leaps or plunges.

"Employees and employers get tax relief on contributions. In addition, the money grows in a tax-efficient fund."

Charles Cotton, reward and employment conditions adviser, the Chartered Institute of Personnel and Development (CIPD)

"Nothing is stopping you from paying into the personal pensions of your staff. The contributions your company makes will not suffer tax or national insurance and you will be able to offset them against corporation tax. The bad news is that it will involve a lot of hassle.

"The stakeholder scheme you are already operating makes more sense. The charges are capped at 1.5 per cent and individuals can switch the fund to another scheme when they leave, without having to pay a transfer penalty.

"A pension plan has to be considered in the wider context of what makes your company a rewarding place in which to work, both financially and non-financially. The scheme will only help attract, retain and engage staff if it is well communicated."

Stewart Masterton, adviser, Business Link for London

"A company can add funds to an employee's pre-existing scheme, but the arrangement will need to be assessed on a case-by-case basis. The administrative load should be taken into account as the company could be responsible for investing monthly in as many schemes as there are employees.

"As an alternative option, a group personal pension creates an individual plan for each worker into which both employees and employers can contribute. This approach is more involved than the standard, legally required stakeholder pension.

"The advantage of this type of arrangement is that it indicates a willingness on the part of the employer to invest in its employees' futures.

"Information on setting up a scheme can be found at www.thepensionsregulator.gov.uk."