All change for employee’s pensions

It has been some time since employers were required to provide a stakeholder pension fund for their employees to contribute to should they so wish. The government had hoped that the provision of this arrangement in the employment contract would encourage employees to make better provision for their retirement, but the voluntary nature of it ensured that although all contracts made reference to a provision, very few made use of it.

In order to address this, the Pensions Act 2008, which received Royal Assent in November 2008 aims to address this. It is not expected to come into force until 2012 but the implications for employers will be far reaching. Amongst other things employers will have to ensure their pension provision meets minimum standards and all employees will automatically be enrolled into the scheme. Perhaps of even more significance to employers is that they will be required to pay compulsory minimum contributions on behalf of their employees. There will be provision for employees to opt out but employers cannot provide financial incentives to do so, nor seek the employee’s intention on this question when interviewing a candidate.

Changes to the advisory fuel rates from 1 December 2009

To reflect the increase in fuel prices, HMRC have issued new advisory fuel rates for employees driving employer provided cars. These take effect for all journeys undertaken from 1 December, so employers using the advisory rates should advise affected employees accordingly.

The advisory fuel rates may be used for journeys undertaken on or after 1 December 2009.
Engine size Petrol Diesel LPG
1400cc or less 11p (10p) 11p (10p) 7p (7p)
1401cc – 2000cc 14p (12p) 11p (10p) 8p (8p)
Over 2000cc 20p (18p) 14p (13p) 12p (12p)

Other points to be aware of about the fuel rates:
* Employers do not need a dispensation to use these rates.
* Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.

The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

Inside this issue:

The Recession is Officially over - Or is it? Robert reflects
All change for Employees’ pensions - The Pensions Act will come into force sooner than you think
Changes to the advisory fuel rates - HMRC offer new guidance rates

Wealth Creation Specialist - February 2010 Newsletter

The contents of these articles represent the opinions of the authors, and not of Professional Solutions Group Ltd. Neither Professional Solutions Group Ltd nor Tenet Connect Ltd. are responsible for the accuracy of the content of the articles. These articles do not constitute a recommendation to purchase any of the products mentioned.

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THE RECESSION IS OFFICIALLY OVER - JUST

Synopsis: The latest figures from National Statistics show that the UK economy is no longer shrinking.

When the preliminary third quarter GDP figures emerged from National Statistics last October, they came as an unwelcome surprise to most economists. As we noted in a bulletin at the time, the 0.4% fall was well adrift of the 0.2% increase that was the consensus forecast. Some economists suggested National Statistics had got its figures wrong, while others emphasised that the first releases of GDP figures contain a large element of estimation and that eventually things would not look quite so bad. In the event, two subsequent revisions have seen the third quarter contraction reduced to 0.2%.

This time around the Reuters´ poll produced estimates of between +0.2% and +0.9% increase, leaving a consensus level of around 0.5%. However, once again the practitioners of the dismal science appear to have been insufficiently gloomy: the growth recorded by National Statistics for Q4 2009 was just 0.1%. If you accept the traditional definition of a recession as two consecutive quarters of contraction – and the UK has had six - the country is now out of recession.

The miniscule recovery could yet be revised down into a seventh quarter of recession. If the initial GDP figure remains unaltered, it means that the recession produced a 6.1% contraction in the UK economy from the Q1 2008 peak. In 2009 the economy contracted by 3.3%. The net result in inflation-adjusted terms is that the UK economy is virtually the same size today as it was four years ago.

So what does the 0.1% growth imply?

The Chancellor´s position has got no easier. His December Pre-Budget Report forecasts assumed a 1.25% growth for this year and then 3.5% for 2011 and 2012. This scenario has been looking optimistic ever since it was announced, but it was a necessary one to start shrinking the government deficit. The economy may be the same size as four years ago, but government expenditure is definitely not. There is now a possibility that 2010 returns to negative growth. The increase in VAT, end of the car scrappage scheme, 50% income tax and a lower stamp duty land tax threshold will all be constraints on growth.

The Bank of England is moving into ever more difficult territory. In February it has to decide whether to extend quantitative easing (QE) again. The expectation has been that it would pull the plug at £200bn, but feeble growth and a tightening fiscal environment might see one last push. On the other hand, next month is almost certain to see Mervyn King writing a "why-inflation-is-too-high" letter to the Chancellor. One thing is a fair bet: those who were expecting a rise in interest rates in Spring are probably moving out their timescales.

COMMENT
These figures create an awkward backdrop for the forthcoming election. Politicians will be hard-pressed to explain how they will turn round the economy without more pain: this could be an election to lose.