Changes To The Pension Legislation

by Mark Smith 17. December 2011 00:00

Pension’s legislation in the UK is to undergo the biggest change for generations.

Companies will be required to offer employees a pension contribution and each company must have a pension in place into which employees will automatically be enrolled. This could be an existing or new pension scheme, as long as it "qualifies". If a company does not have a qualifying pension scheme, then it must introduce one. There are a number of schemes being made available, which are likely to offer different pros and cons to both the employee and consequently the employer.

The new legislation requires auto-enrolment of eligible employees. This legislation will affect all employers and the phase in was due to be over a four year period from 2012, however this may well change depending on the prevailing economic climate.
Employers will have responsibility for ensuring they have a compliant scheme in place and that the correct employers and employees contributions are paid in to the scheme.
For many companies this may involve an increased cost for each employee enrolled. The proposed contribution phasing period is listed below, but as mentioned above this could well change.

  Employer Employee Tax Relief
Up to Oct 2016 1% 0.8% 0.2%
Oct 2016-Oct 2017 2% 2.4% 0.6%
From Oct 2017 3% 4% 1%

These costs are based on a pensionable pay band, which as has yet to be defined.

It is important to note that there is no obligation to offer the NEST pension scheme to employees, however a suitable scheme must be offered and no barriers should be put in place, which may deter employees from joining, which even covers requiring an employee to sign a form.

Employer Responsibilities

Employers are free to select any appropriate occupational or group personal pension “automatic enrolment scheme” to offer their staff.

The employer must ensure their choice of scheme satisfies the primary requirements, which are:
•    It must allow “auto enrolment”
•    It must not force any member to make a choice or provide any information. For example a scheme must provide a default investment fund suitable for all categories of staff irrespective of age, income or attitude to investment risk.
•    The scheme must be registered with The Pension Regulator.

Companies that do not have a suitable plan will need to seek a provider of a qualifying pension scheme.