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Andrew Tully
Senior Pensions Policy Manager
Standard
Life
The pensions Act 2008 - Personal Account
There have been an increasing number of pension acts over the last few years but the 2008 variety promises to live long in the memory of most employers. Much of the coverage of this piece of legislation has focused on personal account, the government-sponsored pension scheme which will be introduced in 2012. But this is only a sideshow to the main event. The pensioner’s act 2008 introduces compulsory pension provision which means, from 2012, employers will need to enrol most of their staff in a pension scheme automatically and pay a contribution of 3% for those who remain members.
The key requirements from 2012 are:
Employers must auto-enrol all jobholders in a pension scheme if they are aged between 22 and state pension age and earn more than £5,035.
A contribution of 8% band earnings must be paid, with the employer paying at least 3%
People can opt out of the scheme and, if they do, no contributions need to be made on their behalf
Employers need to re-enrol employees who opt out- at least every three years
Band earnings are earnings between £5,035 and £33,540(in 2006/07 earnings terms)
Job holders include temporary staff and contract workers
Employers can choose to use a good quality private scheme or a combination of the two to fulfil their responsibilities
For employers who don’t currently offer a pension scheme, the requirement to pay 3% of band earnings for those who don’t opt out will increase business costs. This may be an extra 2% or 2.5% of payroll, given that the first £5,035 of earnings is ignored and depending on how many employees opt out.
Most employers who currently offer pension schemes will also be affected. Many schemes in the UK operate on an opt-in basis where employees need to choose to join their employer’s pension scheme. The switch to automatic enrolment, where people are members unless they actively decide not to be, is likely to see an average take-up increase from around 55% to nearer 80%. And the requirement for a contribution of 8% of band earnings, with at least 3% being paid by the employer, may be higher than in many current schemes. Again an increase in employer costs is likely.
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