ARE YOU READY FOR THE 2012 CHANGES TO WORKPLACE PENSION SCHEMES?

At present UK employers are not required to contribute to their employees’ pension schemes. However, that is set to change from 2012.

From 2012, as an employer, even if you employ just one person, you will be responsible for choosing a Qualifying Workplace Pension Scheme (QWPS) for your employees. It is therefore important that you have a good understanding of what is required of you and the choices available.

Albert Goodman Chartered Financial Planners can provide you with detailed guidance to enable you to plan ahead for the changes affecting you, and to choose the best option for your business. The new legislation will affect both employers and employees.

The Government is introducing the National Employment Savings Trust (NEST), which is a low-cost pension scheme that any employer can use to meet the new legal duties, which start to be introduced from October 2012.

We will advise you on the main points including:

How the requirement for auto-enrolment will work.
What needs to be done to comply with the new rules and how much this will cost.
How the new rules will impact on your current employee benefit and pension arrangements, if you have any.
Whether you need to change existing pension contribution rates.

The following questions and answers provide some basic background and information about the changes.

It is equally important that your employees are made aware of these changes, so please share this information with them and, if appropriate, we can explain the new rules to your employees.

Why are the new rules being introduced?
Currently over 4 million employees are making no provision for their old age. In addition, we are now all living longer and are likely to enjoy a longer retirement. The Government has recognised that the cost of providing State Pensions and means-tested benefits for those in retirement is becoming prohibitive, and has therefore introduced NEST, which is primarily designed to help lower earning employees to boost their retirement income.

What is a Qualifying Workplace Pension Scheme (QWPS)?
A QWPS will be a pension scheme for your employees, to which you and the employees will contribute, to provide them with an income to supplement their State Pension when they retire. It must meet minimum criteria in the following areas:

Auto-enrolment of eligible employees
All eligible employees must be auto-enrolled within 90 days of joining the employer
A default investment fund
A minimum total contribution, subject to the definition of qualifying earnings.

The main benefits for your workers are that you pay a contribution into their pension that is not taxed and that this is an easy and tax-efficient way for them to save.

When will the new rules come into force?
The start date for auto-enrolment is phased, based on the number of employees an employer has. The largest employers will be included from October 2012, with all employers covered by September 2016. For a schedule of the phasing-in dates, known as “Staging Dates”, click here.

The Pensions Regulator will contact you 6 to 12 months before your Staging Date.

Do all employees have to be auto enrolled?
All eligible workers must be auto-enrolled within three months of commencing employment. Employees can opt out up to one month after the enrolment, although employers are not allowed to encourage this. Eligible workers are those earning over the personal allowance (£7,475 in 2011/12) and aged between 22 and their State pension age. Exemptions include certain short-term contract workers and employees working outside the UK.

What are the minimum contribution levels under the new rules?
Contribution levels are being phased in between October 2012 and October 2017. In October 2012 they will start at a minimum rate of 2% of qualifying earnings, of which the employer must pay at least 1%, rising by October 2017 to 8% of qualifying earnings, of which the employer must pay at least 3%. Employees will benefit from income tax relief from HMRC on their own contributions, currently at their highest marginal rate.

Qualifying earnings for NEST in the tax year 2011/2012 are all earnings between £5,715 and £38,185 a year. Earnings include salary, wages, bonus, commission, overtime, statutory maternity/paternity pay and statutory adoption pay.

An employer can use this method to define qualifying earnings, and therefore contribution levels, in their QWPS, or one of three other definitions to suit their own circumstances.

The maximum total contribution to NEST is £4,200 a year.

The employer may also bear the entire cost or an increased percentage if they choose to do so.

Which pension schemes potentially could comply fully with QWPS requirements?

Personal Pensions
Stakeholder Pensions
SIPPs (Self Invested Personal Pensions)
An Occupational Money Purchase Scheme
An Occupational Defined Benefit Pension Scheme
National Employment Savings Trust (NEST)

Why choose the NEST scheme versus another Qualifying Workplace Pension Scheme?
NEST may be a simpler way of meeting the new requirements than running or setting up your own bespoke QWPS. However NEST is unlikely to have as much appeal to moderate and higher earners, or to employees looking for a greater degree of investment choice and higher contribution levels. Keeping or setting up your own qualifying pension scheme could be a more effective benefit and employee retention tool for a broader range of staff.

You can set up pension arrangements for your workers at any time and you don’t have to wait until NEST and the new regulations are introduced in 2012.

If you would like to find out more about pensions auto-enrolment and how we can help with the implementation, please complete a reply form (click here) or contact Andrew Brown on 01823 286096 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .