Pensions to be ‘opt out’

DAN SMITH of Ensors Financial Planning outlines the rules for automatic pension enrolment, which will take effect for some employers from 2012

FOLLOWING a post-General Election review, the coalition Government has confirmed that automatic pension enrolment will go ahead from October 2012.

The key points for employers are that they must auto-enrol eligible workers in a qualifying pension scheme but the date on which the auto-enrolment becomes effective varies.

For the largest employers this will be from October 2012. For smaller and new employers the legislation does not take effect until between 2014 and 2016.

Employers will need to contribute up to 3% of a specified band of earnings as a minimum although this will be phased in over five years. Employees (where the employer has not elected to pay all of the contributions) will need to pay 1% until 2016 and then be prepared to increase this to 3% 2016-17 and from then on 5%.


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Eligible employees are defined as workers aged from 22 to State Pension age who have annual earnings between an annual level initially suggested to be �5,035 and �33,540 although employees aged from 16 to 21 and those older than State Pension age have a right to insist on joining the scheme.

Employers will have three months to supply any new workers with information and auto-enrol them in their pension scheme.

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Employees can choose to opt-out but systems will need to be in place to automatically re enrol that person who must then decide whether to continue to opt out.

Existing pension structures such as final salary schemes, occupational and personal money purchase pension schemes can be used to comply with the auto-enrolment legislation provided they meet the qualifying conditions.

The Department of Work & Pensions is making a new vehicle available to comply with employers’ duties. This is the National Employment Savings Trust (NEST) and is designed to be a low cost arrangement.

Employers need to identify the date at which they will be expected to comply with the regulations and for those employers who currently provide a workplace pension they will need to consider whether it complies with the new regulations.

If it does not, they will have to amend their existing arrangement or implement NEST.

Those employers who have hitherto not offered their staff the option of saving via a pension will have to establish a qualifying arrangement or implement NEST.

This information is given by way of general guidance only, and no action should be taken solely on the basis of the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.

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