With a growing population and increased life expectancy, the Government have decided that all employers, regardless of their size, should offer a qualifying company pension scheme or enrol their staff into the new National Employment Savings Trust (NEST). The Pensions Act 2008 establishes new duties on employers, which will start being introduced from 2012. The main change for employers is that once the Act is fully implemented, they will be required to contribute to their employees’ pensions.
What is NEST?
NEST is being offered as a way for employers to meet their new legal duties from October 2012 but its use is not mandatory – employers can choose to run an alternative pension scheme as long as it meets certain minimum conditions. These conditions set out a number of stipulations, including the minimum amount of money that employers will have to contribute towards their employees’ pensions. If an employer does not provide a comparable scheme, in terms of contributions, then they will be required to automatically enrol their employees into NEST and make the required contributions.
When are the changes effective from?
Not all employers will have to comply from October 2012 because there is a phased implementation according to size of the organisation. The largest employers (those with 250,000+ employees), will have to comply in October 2012. Thereafter, all employers will be caught within the grasp of the Act at monthly ‘staging dates’ until the smallest employers are covered. By October 2016 all employers, both large and small, will have to ensure that all qualifying employees are auto-enrolled into such a scheme.
Which employees are eligible?
Employees will be eligible to be automatically enrolled into their employer’s pension scheme if they are:
• aged at least 22 but are not yet State Pension Age;
• work or ordinarily work in Great Britain or Northern Ireland;
• earn more than £7,475 a year (this figure may be updated for 2012); and
• employed for a minimum of 3 months.
These people are known as eligible jobholders and their employer will have to make a minimum contribution into that scheme on their behalf. Jobholders who have been automatically enrolled into a pension scheme can choose to opt out if they wish.
Other individuals will have the right to be enrolled into their employer’s pension scheme if they are:
• jobholders aged between 16 and 22, or between State Pension Age and 75 with earnings of more than £7,475 a year. If these individuals ask to be enrolled their employer will have to make a minimum contribution.
• workers aged at least 16 but who are under 75 and who do not have earnings of more than £7,475. If these individuals ask to be enrolled their employer will not have to make a minimum contribution, but it can if it chooses.
How much do employers have to contribute?
The Pensions Act 2008 sets out minimum contributions that are payable into eligible jobholders’ retirement savings pots. Employers have to put in a minimum contribution, together with the jobholder’s contribution and the Government will contribute the rest in the form of tax relief. Employer contributions will be phased in over time starting with 1% and growing to at least 3%.
For more information on the proposed changes to pension contributions, please contact the Peninsula Advice Service on 0844 892 2772.