Under provisions contained in the Pensions Act 2008 employee pension enrolment and employer contributions are to be made compulsory.
These provisions, which are due to come into force in 2012, cover the automatic enrolment of qualifying workers into a qualifying workplace pension scheme and a duty on employers to make contributions to such a scheme. To ensure that employers are able to comply with these duties a universal personal account scheme is being created.
The main details of the scheme are:
- automatic enrolment of eligible employees aged between 22 and state pension age earning over £5,035 per annum (unless employee opts out)
- employer contributions of 3% on a band earnings, initially set as £5,035 -£33,540
- employee contributions of 4%, with an additional 1% funded by the government in the form of tax relief
- both employer and employee contribution levels will be phased in over three years
- an enforcement regime led by the Pensions Regulator, with powers to penalise employers who do not comply with the regime.
Consultations and regulations will be issued in the lead up to the introduction of the legislation. These should make it clearer what is expected of employers and pension schemes in anticipation of the new regime starting in April 2012.
The Personal Accounts Delivery Authority (PADA) has recently launched a “myth busting” campaign in advance of the rules taking effect in 2012.