Expert view

Employers must act now over pensions

Ros Altmann — Thu, 25 Apr 2013 09:46:24 +0100

A seismic shift in pensions is underway, affecting all UK employers and employees. The government is revolutionising workplace pensions, forcing all employers, whether large companies with thousands of workers, or working mothers employing one nanny, to provide pensions for their staff. No ifs, no buts, employers will have to automatically enrol all eligible workers and pay into their pension scheme. Staff can choose to opt out, but only after they have been put in.

With less than half the UK workforce actually paying into a pension fund, the government hopes that once workers are enrolled, inertia will ensure they stay in and millions more will start saving for retirement with help from their employer.

Until now, only firms with over five staff had to offer a pension scheme, and they did not have to contribute at all. But the new pension obligations are really onerous. Employers should start planning 18 months in advance as the new rules are mind-bogglingly difficult. Setting up a scheme, explaining it to staff, enrolling them and paying into it will consume management time.

Indeed, pension contributions are only part of the extra burden facing businesses. The administration and compliance costs will probably come as a terrible shock. The complexities of the auto-enrolment rules are evidenced by the fact that the Pensions Regulator has issued 200 pages of guidance. Even if no workers stay in the scheme, the costs of setting it up will be significant and failure to comply could lead to large fines or criminal prosecution.

Employers must choose a pension scheme which meets approved minimum requirements, with suitable investment options and charges. This can be an employer’s existing scheme, a new pension arrangement, or the government-backed national scheme called NEST.

All employers have a legal auto-enrolment start date. The largest firms are first, with smaller employers starting between 2015 and 2017. All eligible workers (called “eligible jobholders”) must be enrolled into their pension scheme by this “staging date”.

Unfortunately, identifying “eligible jobholders” is not straightforward. Those aged 22 to 65 and earning over a minimum level must be enrolled, and younger, older or lower-earning workers must also be put into the pension scheme if they request it. Contractors and agency workers may also be eligible, if they meet certain criteria.

Employers must deduct pension contributions from all enrolled workers’ earnings and also pay in an employer contribution. Initially the total will be at least two per cent of their earnings between the lower and higher National Insurance thresholds, rising to eight per cent by 2018.

And auto-enrolment is not a one-off exercise. Every month the employer must reassess its workers in case some become newly eligible. Low earners may receive a bonus or extra pay that will lift them above the minimum eligibility threshold. Some may turn 22 and have to be enrolled for the first time. And every three years all workers must be automatically re-enrolled and opt out again if they still don’t want to belong.

It is important to stress that it is illegal to encourage workers to opt out. Offering a pay rise instead of the pension contribution, or suggesting they should not stay in the pension scheme, is against the law. Even flexible benefits systems could be construed as inducements to opt out, so care must be taken with all communications.

Pensions will be a major burden for employers over the next few years and many small and medium-sized firms will struggle with the new rules. Finding advice to help with auto-enrolment could take time to organise, so don’t leave it too late.

Any employer who has not started thinking about auto-enrolment yet, needs to get on with it.

Ros Altmann is a former government policy adviser on pensions.

www.rosaltmann.com

New jobs laws ahead

Jonathan Cantor — Thu, 14 Feb 2013 09:21:01 +0000

As the new year starts, it is fashionable to look ahead to what the next twelve months have in store. For employers and employees, the challenge will be to keep track of the changes in employment laws.
l Parental leave increases — the parental leave period is being increased from three months to four months. Expected implementation date, March 2013.

1. Introduction of portable DBS checks — once a Disclosure and Barring Service check (previously a CRB check) has been conducted, the results will be available online, enabling employers to confirm that no new information has been added since the check was originally made, and meaning an employee will not have to obtain a new check each time they start a new job. Expected implementation date is March 2013.

2. Removal of legal aid — legal aid is being withdrawn for most employment claims in England and Wales. Legal aid remains for advice and assistance in relation to claims under the Equality Act prior to tribunal proceedings. Implementation date to be confirmed.

3. School leaving age is going up — duty on all young people in England to participate in education or training until the age of 17 (increasing to 18 in 2015). Implementation date to be confirmed.

4. New “Employee–Owner” employment contracts — employees can be given between £2,000 and £50,000 of shares in the business which will be exempt from capital gains tax.
In exchange, the employee agrees to forego certain employment rights, such as “normal” unfair dismissal protection after two years continuous service and statutory redundancy pay. Expected implementation date, April 2013.

5. Redundancy consultation regime changes — these will impact all businesses proposing to make 20 or more employees redundant in one establishment within a period of 90 days or more.
For redundancies of more than 100 employees, the consultation period is being reduced from 90 to 45 days. This aim is to enable employers to restructure businesses quicker. Expected implementation, April 2013.

6. New Employment Tribunal costs — claimants at employment tribunals will have to pay both an issue fee (between £160 and £230) and hearing fee (£250 or £950). Tribunals will have discretionary power to impose financial penalties on employers who lose a tribunal claim. Implementation dates to be confirmed.

Jonathan Cantor is a partner at Nabarro law firm

Why Cash is not King

Tony Morris — Thu, 07 Feb 2013 10:29:40 +0000

Whoever answers the phone first in your company wins or loses the business for you.
As we try to come out of one of the worst recessions our economy has ever experienced, it is more important than ever to provide exceptional customer service on every call. Many businesses say “cash is king.” I strongly disagree. I believe “customer is king” and cash comes second.

It has been proven time and time again that if you do a good job someone will tell another person. If you do a bad job someone will tell 10 people. Think of the last time you had a great meal in a restaurant and an awful meal. Which one did you tell people most about?

Social media has played a big part. Some 86 per cent of customers quit doing business with a company because of a bad customer experience, up from 59 per cent four years ago (Harris Interactive, Customer Experience Impact Report).

How familiar are these statements to you: “Name, postcode, who wants him? What’s it about?” These were all designed by a sales prevention officer. We answer the phone in a professional corporate manner and show that we care for each individual customer.

A client of mine was having a problem with retaining customers. When we looked into the situation properly we found out that because he was very busy, the incoming calls were too high for his receptionist to handle and therefore rather than tell him, she just rushed people off the phone. Fifty per cent of new callers don’t ring back if they don’t get an answer when they call, and 15 per cent of existing customers don’t call again if they get the same experience (Moneypenny).

This was handled easily by doing two things: retraining the receptionist. and using the phone system to better effect so that calls were diverted to the right people. This is not always that easy to handle.
If we want to be the best of the best we must start looking at all areas of our business. We cannot say: “Oh she’s just the receptionist or my people are very busy.” Spend time and money on training and extolling your ethos and reap the rewards. The alternative is too horrific to think about.

Tony Morris is director of the Sales Doctor

New market matters

Elissa Bayer — Mon, 10 Dec 2012 14:33:06 +0000

Markets over the past few months have not been easy even though the major Indices are at fairly high levels. The UK is showing faint signs of growth and Quantative Easing and the money pouring out of the Bank of England has reached a record £375 billion, which few might have predicted. Sir Mervyn King is reaching the end of his tenure as Governor and time will tell how his surprise-choice new successor, Mark Carney will get on.
There seems to be a school of thought that not paying the debt off may be what will happen and the debt will be written down, but that causes further inflationary pressures so the situation has to be finely balanced.

The Eurozone remains volatile. Germany is dominant and France is the junior partner in the Franco/German alliance. Angela Merkel had a far better partnership with the previous French president and the weaker relationship means that the Germans are very much in the ascendancy. The US has had a reasonable run, although the hurricane closed the New York Stock Exchange, which has not happened for years from a weather-related incident. Re-elected President Obama will have to deal with the much talked about “fiscal cliff” which is looming in January. This is a mixture of tax cuts and benefit reductions which were agreed under the Bush Administration and whilst it is agreed that taking money out of the economy at this stage in the cycle is not going to be beneficial, the Americans, as usual, will run it to the wire before taking action and after the more sensible options have been exhausted.

For investors, it is all about choosing the right stocks and as political leadership is not forthcoming, companies have to look to new markets and find a way of making money from hard-pressed consumers everywhere. Emerging markets have been more difficult to measure but with China still growing rapidly compared with the West, the middle classes continue to buy and demand more. Their Government is changing so watch where the new leaders travel first — an indicator of who is strongest.

Elissa Bayer is a senior investment director at Investec Wealth and Investment

We must help savers when it comes to pensions

Ros Altmann — Thu, 15 Nov 2012 09:39:27 +0000

VSavers have suffered a triple blow in recent times and Government has ignored it. It is time to reform the ISA rules to offer some help.
It is over three years since the Bank of England brought interest rates down to 0.5 per cent, dramatically reducing savers’ income. Moreover, with inflation overshooting the two per cent target, the real value of their savings has been whittled away. Then, adding insult to injury, their interest income is taxed. Savers did not cause the economic crisis, but have paid a heavy price from policies designed to fix it.

Since National Savings withdrew their inflation-linked tax-free bonds, the best option for tax-free savings nowadays (outside a pension) is the “use-it-or-lose-it” £11,280 annual ISA allowance. But the rules allow only half of this to be put into cash ISAs. The other half must go into stocks and shares. And investors are allowed to switch from a Cash ISA to an investment ISA, but not the other way round. This is unfair on millions of savers. Younger people saving for a house deposit need to know that the money will be there for them, and older savers, who have set money aside for later life, can’t afford to gamble with their nest egg. The Treasury should not tell people how to save their money — individuals can decide what assets are best for themselves. Switching to cash is often what they need to do, so why should they lose their tax-allowance

It is hard to fathom what the rationale for these restrictions is. Stocks and shares ISAs can be invested wholly in foreign firms, so the current rules may not benefit the UK economy at all, whereas cash savings are more likely to be spent here. Allowing an extra £5640 a year into tax-free cash ISA savings would be a welcome boost to hard-pressed savers. The Chancellor should change these rules in his next Budget. Abolishing old-fashioned ISA restrictions would provide relief to savers and go some way towards compensating for the damage done by monetary policies designed to help borrowers and banks.

Ros Altmann is the director general of Saga and a former government pensions adviser

We need more IPOs

Jonathan Morris — Thu, 08 Nov 2012 08:43:47 +0000

The recent Initial Public Offering (IPO) of Direct Line Insurance Group, valued at £2.6 billion and with an associated fundraising of £787 million, has spurred hopes in some quarters that the current drought of public flotations on the UK markets may be drawing to a close.

However, it is by no means certain that it heralds a return to the heady days of 2005/2006 when hundreds of companies had their shares admitted to trading on AIM and the Main Market.
This was starkly illustrated by the subsequent news that the Russian bank Promsvyazbank had cancelled its plans to dual list in London and Moscow, apparently as a result of concerns regarding valuation. Questions have been raised as to whether this will now adversely impact upon the London IPOs of other Russian companies currently in the pipeline. It is clearly important for both the City and the UK economy generally that the public markets return to good health as soon as possible. Therefore, the recent announcement by David Willetts, Minister of State for Universities and Science, that the Government is considering relaxing the Listing Rules for high-growth technology companies on the London Stock Exchange is a key development.

Although the details remain rather sketchy, one key aspect, which has been highlighted, is the suggestion that the free float for these companies could be reduced from 25 per cent to 10 per cent. This will need to be thought through in order to assess what effect such a change is likely to have on liquidity.

Another area of focus for the Government is expected to be corporate balance. Whilst any move to reduce the reporting obligations on high-growth tech companies is understandable, this will need to be carefully callibrated to avoid it becoming a disincentive for potential investors. The Government’s desire to examine ways to stimulate more UK IPOs of tech companies is a significant step forward. However, finding the right mechanisms to do so will not be without its challenges.

Jonathan Morris is a corporate finance partner at the international law firm Berwin Leighton Paisner LLP

Currency Dilemmas

Ben Mitchell — Thu, 01 Nov 2012 11:34:46 +0000

Virtually all the Western economies have been in trouble over the past few years and their respective currencies have borne the brunt. There have been many false dawns for the global recovery in the past 12 months alone, but each sign of optimism has been quickly overcome by a shaky data report or ratings agency downgrade.
Exchange rates have reflected this, fluctuating up and down, proving a nightmare for anyone involved in sending money overseas. It has long since been accepted that the UK economy is “bumping along the bottom” of the longest period of protracted economic decline that anyone can care to remember. But if we look at the fortunes of the Pound in isolation, it has been doing rather well against may of the key currencies of late, including the Israeli Shekel.

Sterling has remained relatively weak against the US Dollar, however it has fared rather better against the beleaguered Euro which has fallen to its lowest value in years. People with transactions coming up in the not too distant future have been locking in, to take advantage of the situation.The evidence is there in the numbers: £300,000 would buy you approximately €370,000 at today’s prices versus around €330,000 at the same time last year. Many investors have been swooping in to take advantage of property bargains, particularly in France, but also elsewhere in the Eurozone.

The Pound has also fared fairly well against the Shekel in the past few months, as Israel’s economy has slowed. The rates are (at the time of writing) at 6.3 versus 5.8 at the same time last year. This is good news for anyone planning a visit, an investment, or a large purchase of any kind in Israel anytime soon.
A weaker Shekel isn’t entirely a bad thing for Israelis either. As an export-heavy economy, a decline in the value of their currency makes goods more attractive to foreign buyers, which could help re-energize growth. UK exporters are faced with precisely the opposite problem, and the UK’s recovery could stutter as a result.

Ben Mitchell is an international currency specialist at foreign exchange company, World First

Start-up accelerators need driving

Thu, 06 Sep 2012 14:45:53 +0100

On March 11 2005, Paul Graham, an entrepreneur and angel investor, gave a talk to the undergraduate computer club at Harvard about building start-ups. While few heard about this talk in advance, its outcome is well known and drives one of the emerging trends in today's start-up industry. The lecture resulted in the establishment of Cambridge Seed, better known as Y-Combinator (YC), one of today's most successful business accelerators.

Seven years on, thousands of private business accelerators replicating YC are emerging. But there is one difference: poor results. Over 90 per cent of business accelerators are cash negative.

To understand why, one needs to understand the fundamentals of a start-up accelerator. An accelerator admits early stage start-ups to a short-term program that provides mentorship, capital and other resources, in exchange for partial ownership, with the goal of accelerating their growth and increasing their valuation.

Accelerators are key to any healthy start-up ecosystem. They can scale across many start-ups and provide early screening. They also develop an alumni network that helps future entrepreneurs scale forward.

Two key ingredients drove YC's success in Silicon Valley and Boston: the pool of talent, which allowed them to screen hundreds if not thousands of high quality applicants, and a healthy ecosystem of VCs that supported the start-ups upon their graduation.

The following ingredients exist in hubs in Silicon Valley, New York, Tel-Aviv, London and Berlin but many accelerators exist outside of these hubs. Mardid, Amsterdam, Santiago, Singapore, Hong Kong, Dublin and Taipei are just a few of the locations where accelerators have emerged.

Most of these still lack the required qualities and quantities. Some of these markets are still missing key ingredients such as access to follow-on investment. I believe accelerators in those geographies should focus on market education versus high returns.

The government of Taiwan has recognised the potential contribution of start-ups and small businesses to its economy and has set up an incubation program inside the Institute for Information Industry (III).

The goal of the program is not to generate returns but rather educate the market, generate a certain buzz together with other parties. In a similar way, the Chilean minister of Economic Development has established Start-up Chile, an incubator providing $40,000 to 300 startups who are admitted to the program. The goal is to educate the market and build awareness.

A final example is MEST, an incubator based in Ghana that supports the development of software companies in Africa. MeltWater, a SAAS based company, operates MEST and my guess is that they are not doing that for the financial returns.

In summary, in most geographies, a for-profit accelerator will not be able to generate the expected returns, mainly due to lack of high volume deal-flow. Long-term parties such as corporations, the public sector and some wealthy (philanthropic) individuals should step in and use the accelerators as a platform for market education and awareness. Doing so will drive start-up volume and quality in the long-run that will justify investments for the sake of financial returns.

Prepare for Pensions Changes

Ros Altmann — Thu, 30 Aug 2012 09:49:27 +0100

Do you understand pensions? If not, you will have to learn because a pensions revolution is coming.

From October, all UK employers will start having to enrol their workers into a pension scheme. Initially the largest firms, then by 2018, every single employer in the country must have a pension scheme. Even working mothers will have to provide pensions for their nannies. Eventually, at least eight per cent of salary will go into the workers’ pensions (four per cent taken from employees, three per cent from the employer, plus an extra one per cent from tax relief).
Employees over age 22, earning above the minimum tax threshold, will be automatically put into a pension scheme, but after being enrolled they can choose to opt out. Employers must re-enrol those opting-out every three years, to keep “nudging” as many people as possible to save.

The Government believes this will mean millions more people have private pensions, as most will not bother to opt-out once they have been put in. By contrast, workers currently have to positively choose to join and increasing numbers do not bother. The Government has set up a national pension scheme, called NEST (National Employment Savings Trust) to provide low earners and small employers with carefully-chosen, low-cost investment options. However, employers will still have to cope with complex contributions, calculations and pension administration to assess which employees are eligible to be auto-enrolled and pay the right contributions at the right time. This could be a nightmare for small employers, particularly those with no experience of pensions.

While this policy has widespread support, it will impose extra burdens on employers. Forcing companies to contribute to workers’ pensions will mean some firms having to scale back pay rises, or cut staff. Others, with existing pension schemes, may “level-down” contributions to the three per cent official minimum to save money.

Will this policy succeed? Time will tell, but with pension confidence at an all-time low, many workers, such as graduates with debts or low earners reluctant to lock money into a pension for decades, may be right to opt-out. If so, the Government might make auto-enrolment more flexible, perhaps allowing some of the money to be used before retirement for student debt repayment or buying a house, instead of being in the pensions “locked box.” 2012 is just the beginning of the pensions revolution — there is more to come.

Ros Altmann is the director general of Saga and a former government pensions adviser

How to win over investors

Marc Cohen — Thu, 16 Aug 2012 08:48:55 +0100

At a time when companies are fighting for survival and markets are depressed, it may seem a little odd to be writing about stock exchange listings (IPOs), but bear with me.

It is Manchester United’s recent bungled IPO that sparked my interest. The owners of Man U have been travelling the world looking for gullible (sorry, I mean willing) investors in the company’s shares. They went to Hong Kong, then Singapore and were told where to go, eventually succeeding in New York but at a much reduced valuation. Investors are not stupid.

The mistake that Man U has made — and which many other companies make on a regular basis — is taking their future investors for granted. Too often companies believe that they can just turn up at an investor roadshow, pitch their business plan and leave with a cheque. IPOs are the lifeblood of the corporate world. They allow successful private companies to raise external finance to fuel growth plans by tapping into the public markets. IPOs give companies prestige and profile and they help attract high-quality personnel with the allure of share options. IPOs also help to retain and motivate top employees.

However, since Lehmans collapsed in 2007 and a spate of high-profile listings ended up destroying shareholder value, the market door for new stock exchange entrants in most developed counties as been slammed shut. So, what can companies do? They need to start planning for public life at least two or three years in advance. Even though the markets look impenetrable, investors are always looking for high quality companies and when windows appear it is essential to be prepared. They need to refine their investment story, build a public media profile to breed familiarity and demonstrate progress, stress test any tricky issues, and address potential investors concerns before they become problems. Firms need to start acting like a public company before they can convince investors they are fit to become one. The sooner this process is stared, the higher chance a company will have of achieving a successful listing.

Marc Cohen is Senior Vice President, FTI Consulting Strategic Communications