Pension Reform & Automatic Enrolment
Recent changes to pension reform:
The new coalition Government asked an independent team to carry out a review of the planned pension reform changes – which are due to be introduced from 2012. The Department for Work and Pensions has recently confirmed it has accepted the proposals made by the review team and they will now be implemented.
The key elements of the pension reform framework will remain in place:
- The requirement to automatically enrol eligible employees into a qualifying pension scheme, and make pension payments for them, will apply to all employers regardless of size.
- Automatic enrolment will be introduced from October 2012 onwards as previously proposed. This will be a staged introduction based on the size of the employer.
- The National Employment Savings Trust (NEST) will go ahead as planned. This is a basic national pension plan which any employer can use to fulfill their duties.
There are, however, some welcome relaxations from the previous proposals:
- Employers will only have to auto-enrol employees earning at least the personal allowance for income tax (£7,475 for 2011/12), although contributions will be based on earnings above the National Insurance primary earnings threshold (currently £5,715). Employees earning between these levels will be able to opt-in and receive an employer contribution.
- There will be an optional waiting period of up to three months before an employee needs to be automatically enrolled. Employees will be able to opt-in during the waiting period.
- There should be a simple system for employers to certify their existing scheme meets the required contribution levels. A scheme will meet the requirements if there is a minimum contribution of:
- 9% of basic pay, with the employer paying a minimum of 4%, or
- 8% of pensionable pay, with at least 3% from the employer - as long as pensionable pay is at least 85% of total pay (across the workforce), or
- 7% of total pay (with at least 3% from the employer).
- The largest employers who are due to start auto-enrolling in October and November 2012 will, if they want to, be able to auto-enrol from July 2012
For employer staging dates please see our dedicated article.
For more information on what employers must do to meet these new requirements please make an enquiry. Our approved pension experts will discuss your options.