To address the fact that a large number of the UK population is under-saving for retirement the government is proposing to reform pensions. New legislation, introduced in stages between October 2012 and October 2016, starting with the largest employers, will require employers to
• automatically enrol eligible employees into a qualifying workplace pension scheme; and
• contribute a minimum of 3% of the employee’s earnings.
Eligible employees are defined as
• being aged between 22 and the State retirement age; and
• have qualifying earnings currently between £ 7,225 (2011/12) - £ 42,475 (2011/12). 'Qualifying earnings' means salary, wages, bonuses, commission, overtime and statutory pay between the National Insurance primary threshold and the upper earnings limit.
Any employees who do not meet these criteria can ask to be enrolled and companies will need to contribute, unless the employee earnings are below the threshold.
The level of contributions is being phased, minimum contributions being:
| |
Employer |
Employee |
Total |
| Oct 2012 - Oct 2016 |
1% |
1% |
2% |
| Oct 2016 - Oct 2017 |
2% |
3% |
5% |
| From Oct 2017 |
3% |
5% |
8% |
Employer staging dates , determined by the number of employees, will be between October 2012 and October 2016.
Employers must ensure that the pension scheme is a qualifying workplace pension scheme i.e. it must
• Permit auto-enrolment; and
• Offer a default investment fund.
As a simple solution for employers the Government has launched the National Employment Savings Trust (NEST) as a default ‘qualifying workplace pension scheme’. We would recommend getting advice from an independent financial advisor as NEST may not be the best option for all.