The government's latest pensions proposals will impact on all law firms whether they have a scheme in place or not. Chris Bryans explains why it could be a good time for firms to review their benefit strategies




Just as pensions were supposed to be getting simpler, the Department for Work and Pensions has published yet another White Paper - Personal accounts: a new way to save.The National Pension Savings Scheme (NPSS) will introduce these accounts, which offer 'an unprecedented opportunity' for savers.



After the relative 'failure' of stakeholder pensions, it is hard not to be cynical about the NPSS. With all the tinkering, 'pensions fatigue' sets in and this makes it difficult to know when we should be paying attention.



The NPSS will affect businesses generally, not just law firms. Businesses and the pensions industry are worried that much of the good work of establishing employer pension schemes will be undone by its introduction. All law firms - regardless of whether or not they already have company pension schemes in place - will be affected.



Without a scheme

Firms without a company pension scheme will usually have a stakeholder pension scheme in place (this is mandatory); these typically have few or no members. The problem is that, without an employer contribution, most people choose to do their own thing rather than join the scheme.



The government is therefore faced with the problem that some seven million people are not saving enough for retirement. Official estimates suggest the NPSS will see an extra six to ten million people saving in personal accounts, which will generate an extra £4-5 billion in savings. At best, that is equivalent to about £833 each, which for a 65-year-old would provide less than £1 per week in extra income.



It seems that the government's priority is to encourage those not saving to start, irrespective of whether the money set aside will make any real difference because of means-tested benefits. Why should this worry you?



The concern in all firms without a company pension is not the introduction of the NPSS itself, but rather the compulsory employer contributions that come along with it. While the contribution level is only 3% of salary in the earnings band, the sudden increase in expenditure could come as a bit of a shock. Alongside this will be the administration of collecting contributions and ensuring these are passed to the new clearing-house. We have all experienced 'regulatory creep' and, if past experience is anything to go by, it will not be long before firms are handling more of the administration and communication with members.



This begs the question of whether you should do something in the meantime. Implementation in 2012 is not that far away and there will no doubt be lots of forms to complete in advance. The answer depends on whether you think it would be better to have a company scheme in place that provides an exemption from a government-run scheme. A company scheme avoids the vagaries of government pension administration.



With a scheme

Many law firms find the provision of a pension scheme to be one of the most important yet expensive employee benefits. Indeed it is essential to have a scheme set up in order to attract staff in some of the very competitive areas of practice.



It has been recognised in the NPSS proposals that good employer pension provision does exist and that this should be preserved by offering firms with a comparable pension scheme an exemption.



In these circumstances, there are several issues that arise, such as non-joiners. We know, for example, that 20,000 Royal Mail staff have not joined their final salary pension scheme, and these people get no other benefit in place of this valuable pension accrual.



Why have so many staff opted not to join their company's pension scheme? In some circumstances, employees may need the money for other reasons. For others, it may well be complacency or that staff do not value pensions. It is still surprising that staff would prefer to forgo the pension benefit just so they do not have to pay the 6% personal contribution.



From 2012, these non-joiners will be automatically enrolled into the NPSS. This could leave businesses with two sets of pension scheme members - those in the company scheme and those in the NPSS - with different benefits, contributions and the like. Although some of these staff may then opt out again, as the NPSS is not compulsory, there will no doubt be some who stay. The prospect of the additional administration and complexity sends shivers down the spines of some human resources managers, on whose desks any problems will end up.



The challenge for law firms with good pension provision in the run-up to the NPSS will be to help all staff understand the benefits of their own pension scheme over this government alternative. The downside will be the extra costs arising from higher take-up of pension scheme membership. A recent survey found that half of all small firms expected the NPSS to lead to lower employer pension contributions and the closure of company pension schemes.



And why should employers not take the opportunity to move all staff into the new state-sponsored scheme? It could cut administration, save on contribution costs and offload responsibility to the state. With the levels of complexity and lack of understanding of the value of staff pensions, are law firms better off reducing the provision to the lowest common denominator and moving employees into the latest government initiative? The cash saved by the firm could be redirected into higher bonuses and other more visible and better-understood benefits.



HR departments and partners regularly consider how best to spend the firm's money on staff benefits. A challenge is often how to convey the value of benefits to staff in a meaningful way.



With change on the horizon, the introduction of personal accounts could be the ideal opportunity to review your benefit strategy.



Chris Bryans is head of pensions at private bank Arbuthnot Latham