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Pension Reform 2012

Are You Prepared for the Pension Reforms in 2012?

It is never too early to prepare for new legislation.

As people are living longer the need for financial support increases. The state pension will still exist but in an effort to encourage more people to save for their retirement the Government is to make changes to the pension system in 2012.

Pension Reform 2012 As Result of Pensions Act 2008

With effect from 2012, employers will be required to enrol all workers (over 22 years of age who have not yet reached State Pension age and who are earning more than £7,475 per annum) into a qualifying workplace pension and also to make minimum contributions into it. This has been brought about by legislation contained in the Pensions Act 2008.

Employers will have the choice of the pension scheme they wish to operate providing the scheme meet certain criteria. A new scheme called NEST (National Employment Savings Trust) will be introduced. This Scheme, although will operate in the same manner as many other trust based occupational pension schemes, is aimed at low to moderately paid employees, to reform pensions in 2012.

Pension Reforms 2012 - Obligations for Employers

Employers choosing a defined scheme will be required to contribute 3% on a band of earnings for those eligible employees – between £7,475 and £33,540 per annum (this figure will be updated for 2012 and is pending legislation). This will be 'topped up' by the contributions made by employees plus tax relief of around 1%. Total contributions will amount to at least 8% for this type of scheme.

But don't panic too much yet! This plan is to gradually enrol businesses and only those with more than 30,000 employees will have to offer their workers a company pension scheme in 2012.

In the Next 5 Years All Employers with Need to Contribute to a Pension Scheme

Between 2013 and 2016 all other employers will then have to set up and contribute into a scheme.

Also to aide employers to gradually adjust to the requirements, the employers contribution levels will also be phased in – starting at 1%, then 2% and finally 3%. The employee's contribution will be phased in the same way.

Employers Will Be Sent a Letter to Inform Them of Obligations

All employers will be sent a letter from the Pensions Regulator 12 months and then 3 months ahead of their staging date. The letter will inform employers of their obligations and when they need to take action.

The obligations on an employer for the Pension Reforms from 2012 and onwards will be:-

• Provide access to a Qualifying Workplace Pension Scheme (QWPS)
• Auto enrol all eligible job holders on the date of eligibility
• Offer access to those who do not qualify
• Keep proper records of the scheme
• File regular return with the Pensions Regulator (first day of eligibility and annually)

This Process MUST be Followed

An employee can 'opt out' of the scheme once they have been auto enrolled but this process must be followed.

Employers do not have to wait until their official staging date to set up and run a QWPS. Setting the wheels in motion sooner will lessen the impact as there are going to be additional costs involved other than the contributions into the scheme. There will also be the administrative costs associated with running a scheme.

Employers MUST Inform Staff of These Pension Reform Changes

Employers should also decide on how they will inform staff of the reforms as they can only implement them either by changing contracts of employment or by running a pension seminar and asking the employees to sign a register to confirm that they agree to be enrolled onto the scheme.

This would then comply with EU rules which protect staff from being put into a pension scheme of which they have no knowledge and which could worsen their financial position.

Prepare Early for Pension Reforms from 2012 and Onwards

Prepare early is the best advice so that your business is ready for the changes that will start to impact on businesses in 2012.

If you need advice on the Pension Reforms 2012 then please contact our local team on 08000 111 303 or fill in the Call Back Request to the right of this screen.

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