As the countdown to the changes continues, employers must ensure they are ready to meet their obligations. The Pensions Act 2008, which is due to come into effect in 2012, will, for the first time place a legal duty on employers to enrol most employees into a pension scheme and contribute towards their retirement. The move is aimed at getting an estimated seven million extra workers saving for retirement. All UK companies will have to offer their staff a pension, with the roll-out beginning in 2012.
The new rules, which will lead to up to eight million people saving into a pension for the first time, will apply to every firm, regardless of how many workers it employs. But companies will be able to wait for three months before staff are enrolled into a pension scheme, to reduce costs for firms that employ large numbers of temporary workers.
The amount people have to be earning before they are automatically enrolled has also been increased from £5,035 under the previous government's proposals to £7,475, in line with the level at which income tax is paid. Other measures to help companies manage the changes include simplifying the process for firms to show that their pension schemes meet the minimum standards required and further measures to reduce the red tape surrounding pension schemes.
The previous government set out plans for all workers to be automatically enrolled into a company pension scheme from October 2012, although they will retain the right to opt out. Individuals will have to contribute 4% of their pay to the schemes, with companies paying in 3% and the Government topping this up with 1%.
- The Pensions Act will take effect from 2012
- It will be gradually introduced depending on employers' size
- At least 8% of an employee's qualifying earnings must be paid into a pension, which is made up of 3% employer contributions, 4% employee contributions, and 1% tax relief
- There will be opt out of schemes for staff, in which case, employers will no longer be liable for paying employee contributions
- All employers must offer a qualifying workplace pension scheme and automatically enrol eligible employees. Those who do not must enrol staff into the system of personal accounts, which will be launched to provide access to a lost-cost pensions vehicle
- Employers will be able to self certify that their existing workplace pension schemes meet the minimum requirements set out by the act
When the act comes into effect, the changes will be phased in over three stages depending on the size of an organisation based on PAYE payroll data. Selected larger employers will be required to comply first, followed by small- and medium-sized organisations and, lastly, by the smallest employers. The need to phase in the changes reflects the enormity of the task.
|PAYE Scheme by Size||Staging Date|
|120,000 or more||1 October 2012|
|50,000-119,999||1 November 2012|
|30,000-49,999||1 January 2013|
|20,000-29,999||1 February 2013|
|10,000-19,999||1 March 2013|
|6,000-9,999||1 April 2013|
|4,100-5,999||1 May 2013|
|4,000-4,099||1 June 2013|
|3,000-3,999||1 July 2013|
For more detailed information and guidance please visit thepensionsregulator.gov.uk/pensions-reform