Hunt4Staff article

Hunt4Staff.com: pensions; trying to make sense of the future

Guest Blogger: Guy Jones

Before committing finger to keyboard I decided to ask around my Independent Financial Advisor (IFA) colleagues to try and get a consensus on who should be doing what and by when. Sadly the only consensus was that there was no one answer to the question, “it depends” was the most common response.

Words like “Auto Enrolment” and anachronisms like “NEST” are being banded about, but where to start?

From 1 October 2012 (subject to the employer’s own introduction date), all eligible workers will have to be auto-enrolled into a qualifying pension scheme. Employers can choose the qualifying scheme they use, which could include NEST (the National Employment Savings Trust).*. Each qualifying scheme must meet minimum standards in respect of the benefits it provides or the amount of contributions paid to it. The scheme must also provide auto-enrolment for all eligible workers, and for all new workers when they become eligible.

* NEST – is a low cost trust based scheme which has to meet certain criteria.

The Basics

The new employer duties are planned to come into force from 1 October 2012. Under these duties, employers will have to:

• Enrol eligible workers into a qualifying workplace pension arrangements
• Choose the qualifying scheme(s) they adopt to discharge the newly arising duty; and either
• Make a minimum 3% contribution towards a defined contribution scheme (based on qualifying pensionable earnings) or NEST (the National Employment Savings Trust); or
• Offer membership of a defined benefit scheme or certain hybrid scheme which either has a contracting out statement or meets the test scheme standard. An eligible worker is an employee aged between 22 and state pension age and earning above the income tax personal allowance (£7,475 in 2011/12). Contributions will be payable on earnings between £5,035 and £33,540. Employers will also have an ongoing duty to maintain qualifying pension provision for workers who;
• Are already members of qualifying schemes; or
• Become members of such schemes.

Gradual introduction

Although new duties come in from 1 October 2012, individual employers’ own duties will be introduced gradually over the following years and will be based on the size of the employer, typically by PAYE size.

The following is a table showing the staging dates for employers with 3,000 or more employees. The Government is revising the staging dates for employers with less than 3,000 employees and further information will appear in the second half of 2012.

Employer (by PAYE scheme size):

• 120,000 or more – Staging Date: 1 October 2012
• 50,000 to 119,999 – Staging Date: 1 November 2012
• 30,000 to 49,999 – Staging Date: 1 January 2013
• 20,000 to 29,999 – Staging Date: 1 February 2013
• 10,000 to 19,999 – Staging Date: 1 March 2013
• 6,000 to 9,999 – Staging Date: 1 April 2013
• 4,100 to 5,999 – Staging Date: 1 May 2013
• 4,000 to 4,099 – Staging Date: 1 June 2013
• 3,000 to 3,999 – Staging Date: 1 July 2013

Other companies with smaller employee levels have a little longer and staging dates are still being finalised.

There will be a three month waiting period before employers are required to enrol workers into their designated scheme. During this period, workers can choose to opt in to start saving straight away.

The largest employers who are due to auto-enrol between 1 October 2012 and 1 November 2012 will be allowed to start auto-enrolment from as early as July 2012 to avoid the Christmas period.

Employers will be given the flexibility to re-enrol workers three months either side of their automatic re-enrolment date.

Minimum Contributions for Defined Contribution schemes and NEST

Where a worker is automatically enrolled in a defined contribution (DC) scheme or NEST, there will be a minimum contribution of 8% of qualifying earnings, of which the employer must pay a minimum of 3%. If the employer chooses to pay the minimum 3%, the worker will pay 4%, with a further 1% paid as tax relief by the government. (Qualifying earnings is earnings between £5,035 and £33,540).

However, these minimum contribution levels will be phased in between October 2012 and October 2017:

• October 2012 to September 2016 – total minimum of 2% of qualifying earnings with at least 1% from the employer
• October 2016 to September 2017 – total minimum of 5% of qualifying earnings, with at least 2% from the employer
• From October 2017, total minimum of 8% of qualifying earnings, with at least 3% from the employer.