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A recent study by the Department of Work and Pensions indicated that there are over 7 million people living in the UK who may not be saving enough for their retirement. People should consider whether they would be able to survive on a single person’s state pension of £97.65 plus a pension credit of £34.35 per week!
In order to encourage individuals to take more responsibility for the funding of their own retirement the Pensions Act 2008 is introducing a requirement on all employers to have in place workplace pension schemes for qualifying employees and to promote awareness of retirement pensions.
This requirement, which comes into place from October 2012 onwards, means that unless an eligible jobholder already has adequate pension arrangements there will be a duty on employers to automatically enrol the employee into a minimum contribution qualifying work based pension scheme, which is called auto-enrolment.
An employee will be allowed to opt out of the scheme, but every three years they will be re-auto-enrolled, at which time they can decide to opt out again if they wish.
An eligible employee will be between the age of 22 and state pension age, they will be working in Great Britain and will be receiving qualifying earnings of between £5,035 and £33,540 per annum. Qualifying earnings will include salary, wages, commission, Statutory Payments (Statutory Sick Pay, Statutory Maternity/Paternity Pay) and bonus and overtime payments.
The introduction of the new rules is to be staged over the 4 years from October 2012 through to October 2016, with larger employers (those who have over 30,000 employees) being required to comply first. Employers who have under 350 members of staff will be required to offer a scheme at some stage between 2014 and 2016.
During this four year period the total minimum contribution, which is made up of the employer and employee contributions plus tax relief from the government, will be as follows:-
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Total minimum contributions as a % of band earnings |
Employer contribution as a % of band earnings |
Balance to come from employee and tax relief from the government |
From October 2012 onwards |
2% |
1% |
1% |
From October 2016 onwards |
5% |
2% |
3% |
From October 2017 onwards |
8% |
3% |
5% |
Many employers currently have work based pension schemes for their employees and it is thought that a majority of these will be qualifying pensions under the new rules. However, the Pensions Act 2008 also sets out plans for the creation of a national occupational pension scheme which employers will be able to use as a qualifying scheme. This new scheme will be established to ensure that all employers have access to a suitable low cost arrangement which will allow them to meet their obligations under the new legislation.
Although the new rules will not be compulsory for all employers until October 2016 it is thought that many employers will wish to take action sooner rather than later and introduce pension provisions for their staff in advance of the government imposed deadlines. We have, for example, seen some employers who have chosen to offer a pension payment of between 1% and 3% for staff as part of their regular pay review. This can be either as part of a salary sacrifice scheme, whereby the staff give up part of their salary to have a pension payment made, or, by maintaining the ongoing salary level and using part or all of any pay increase to fund the employer pension payment.
If you have any queries please contact Lucy Metcalf on Alternatively, one of the Pension advisers at our sister company Dodd Murray Ltd will be able to provide further advice or information on both employee and personal pension schemes. They can be contacted on
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