What steps can employers take to prepare them for the new pension rules and the 2012 reforms?
New Pension Rules and the Pensions Act 2008
- Taking effect from October 2012 the new pension rules will be phased in gradually over four years depending on the number of employees in the company.
- Every business will be required to offer a company scheme which needs to comply with the new pension rules.
- Employees will have to be automatically enrolled into the scheme, or the government supplied default scheme called NEST (the National Employment Savings Trust).
- A minimum of 8% of employees earnings will have to be paid into the scheme, this is made up of an employer contribution of 3%, an employee contribution of 4% and tax relief of 1%.
- Employees must be allowed to opt out of the new pension scheme.
- And employers will be allowed to certify any existing company pension scheme complies the new pension rules.
New Pension Rules 2012 – How to prepare
The new pension rules will place a legal obligation upon employers to automatically enrol their employees into a company scheme and make contributions into the fund. The rules have been brought about to encourage the estimated eight million workers to save for retirement.
- Employers will need to decide what type of pension arrangement they plan to implement in 2012, either NEST or an existing qualifying scheme.
- It is essential for employers to review their existing schemes to establish if they qualify under the new pension rules.
- The new cost requirements for employers to make a 3% minimum contribution need to be reviewed to make sure they are affordable.
- Human Resources and Payroll departments need to be able to manage the increased administration.
Employers have a limited amount of time to make sure they’re ready for the new pension rules and to meet the obligations of the Pensions Act. The changes will be gradually phased in over a four year period and will be based on the number of employees in the company PAYE scheme. The larger the company the sooner obligations begin. You can check your dates using our online Auto Enrolment calculator.
New Pension Rules – Which employees will be affected?
Gradually staging the dates at which companies must comply reflects how big a task the new pension rules are viewed. Automatic enrolment applies to all employees aged between 22 and 75 who earn more than £8,105 but less than £42,475 each year. Auto enrolment has been designed to make it easy for employees to take part in the scheme, however, they can choose to opt out after they have been enrolled.
In order to assist employers meet the new pension rules, the government has created a new trust based pension scheme called the National Employment Savings Trust (NEST). NEST has been created to provide an independent, low charge option which is available to any employer.
Although this option has been created with lower paid employees in mind, businesses can place their whole workforce into NEST and pay higher contributions into the scheme if they choose. In order to satisfy their obligations, employers can choose to use the government supplied NEST or a qualifying workplace pension scheme, or a combination of both.