Another set of regulations is set to fall on the shoulders of all employers. This time it’s a compulsory pension scheme for all employees.
This new pensions law is due to be introduced over four years from October 2012. The largest employers (120,000 or more employees) will be forced to sign up first. Those who employ less than 50 workers will be required to take part in the scheme from a date sometime in 2014 to 2016. The exact date will depend on your PAYE reference number.
Only one-man companies will be exempt, otherwise every employer who has workers in the UK will be required to enrol those workers in a pension scheme. There will be exceptions for workers aged under 22, over state retirement age or paid less than £7,475. Employees will have to take an active decision to opt out and sign a form to do so. The employer will not be permitted to induce employees to opt out, or to screen out potential employees who do not wish to opt out of the pension scheme.
Employers and employees will be required to make contributions to the pension scheme totalling 8% of the workers band (approx £5,000 to £33,000) earnings, including tax relief given on the employees’ contributions. The employer must contribute at least 3% of the workers’ earnings. This level of compulsory contributions will be imposed gradually over five years to 2017.
Employers can use an existing pension scheme, set up a new one, or failing this, use the new pension scheme established by the Government called NEST (National Employment Savings Trust). Where an existing scheme is used the employer will have to certify that it meets all the requirements for compulsory pension saving. Every employer will also be required to register with the pensions regulator.
To prepare for these new regulations talk to your pension scheme provider, if you have one. If you don’t have a workplace pension scheme you need to plan to set one up as this can take sometime to implement, and to start budgeting for the costs! An Independent Financial Advisor can explain all this and may be able to recommend more cost effective alternatives to the NEST scheme.
- Government pension reforms ‘will leave savers worse off’ (telegraph.co.uk)