THE PENSIONS ACT 2008

Changes are coming to the way pension cover is provided by employers.  They will affect all employers and so you should be aware of these changes and, although 2012 sounds some way off, it will need some time to put all the necessary arrangements in place – so read on.

Currently employers with five or more employees have to provide access for their employees to a Stakeholder Pension Scheme.  These schemes are voluntary and employers do not have to contribute.

However, the take up of these schemes has been low and so the government has introduced the new Pensions Act 2008 which aims to make saving for retirement via a work related pension more widespread.

From 2012 all employers will have to enrol all their employees, or jobholders, who are between the ages of 22 and state pension age and who earn between £5,035 and £33,540, into a ‘personal accounts scheme’ or a ‘qualifying scheme’.  Any employee who earns less than the minimum can request to be enrolled on a scheme but the employer does not have to contribute.  The term ‘jobholders’ applies to all staff including those who are on temporary contracts and agency workers.

The ‘personal accounts scheme’ is currently being developed by the Personal Accounts Delivery Authority and will be implemented from 2012.  It will be a money purchase pension scheme.  Employers will have to contribute 3% of a jobholders pay, the jobholder will have to contribute 4% and the government will contribute 1% in the form of tax relief.

For those employers who already have a Stakeholder Pension Scheme it will, if it meets specific conditions, be regarded as a ‘qualifying scheme’.  The conditions primarily include the fact that contributions are made to it at the same rate as the ‘personal accounts scheme’.

If you already have a scheme that can become a ‘qualifying scheme’ you will not have to change your scheme in 2012, you will just have to meet the requirements and start to contribute.  But those employers who do not currently have a scheme of any kind in place will have to start thinking about making arrangements to comply with the Act.

Employees can opt out of the schemes but beware; it will become an offence for an employer to make this a condition of employment or to offer any kind of inducement to employees to opt out.

It seems likely that this new arrangement will be phased in from 2012 so if you are a small company it may not be enforced immediately.  Similarly, they may phase in the level of contributions that employers have to make from, say, 1% to 3% over time. But, at some point all employers will have to do all this so this could be a good time to start seeking advice and to review your pensions provision.