Employers - Pensions Reform

19 June 2012

Pensions legislation in the UK is to undergo the biggest change for decades. Starting in October 2012, for the first time, UK companies will be legally required to offer employees a pension contribution and each company will have to have a pension in place into which employees will automatically be enrolled.

The pension on offer could be an existing or new pension scheme (like a Group Personal Pension or Stakeholder pension) as long as it "qualifies". If an employer does not have a pension scheme, he must adopt the Government's scheme, known as the National Employment Savings Trust, or NEST.

These new auto-enrolment obligations will impact on employers of all sizes, and will be phased in between 2012 and 2016. Employers will have responsibility for paying contributions into a pension – both from them and the employees.

The intention is that the estimated 7 million workers who are not putting money aside for their retirement will start saving for tomorrow, today.

Between October 2012 and 2016, depending on the size of company, allUKemployers will be required to contribute a minimum of 3% of each employee’s eligible earnings into a pension, assuming the employee does not “opt out”. Employees will need to pay a personal contribution of 5% (4% with a further 1% tax relief being added) to make the minimum contribution 8%.

Compulsory employer and employee contributions will be phased in. Simple, straightforward, qualifying criteria for existing Company Pension Schemes, meaning many existing schemes will meet them, perhaps with minor changes.

Exemptions from auto-enrolment are:

  • Those under the age of 22 (but anyone from the age of 16 can ask to be enrolled)
  • Those over state pension age, but under the age of 75
  • Some people on short term contracts
  • Those earning less than £5,035 per annum
  • Those working outside theUK
  • Those already in a qualifying pension scheme

Employees who are automatically enrolled into a pension scheme have the right to opt out within one month of being automatically enrolled if they don’t think the pension saving is appropriate for them. To opt out, they must let their employer know by completing an opt-out notice.

What should Employers do now?

  • Determine when auto-enrolment will take place for their business
  • Consider the cost impact of the Employer Contributions
  • Decide which type of pension to offer – occupational scheme, personal pension or NEST
  • Ensure the scheme chosen meets the Government’s qualifications
  • Communicate changes to staff
  • Ensure adequate administration system in place to deal with the scheme

Should you require further advice on pension schemes for your business, you should contact Sam Park at our Lurgan office (028) 3832 4924 or sam@dalypark.com or Gerry Daly at our Newry office (028) 3026 7715 or gerard@dalypark.com .

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