The Pensions Bill
Automatic Enrolment, Minimum Employer contributions and Personal accounts.
The Government’s second White Paper, Personal Accounts: a new way to save, set out proposals, which for the first time, will give many low and median earners the opportunity to build up private pension savings with contributions from their employers and the State.
On 5 December the Government introduced a Bill to deliver these changes. From 2012, it is proposed a system of automatic enrolment, together with minimum employer contributions will provide access to a private pension to all eligible employees between 22 and State retirement age, who are not currently enrolled in a workplace pension scheme.
The Pensions Act 2007 created the Personal Accounts Delivery Authority to advise on the reform proposals.
Automatic enrolment
From 2012, the Government plans that all eligible workers, who are not already in a good quality workplace pension, will be automatically enrolled into either a qualifying pension scheme or into the personal account pension scheme. Automatic enrolment means instead of choosing whether to join a workplace pension scheme provided by their employer, all eligible workers will have to actively decide not to be in a scheme, if for any reason they feel saving in a scheme isn’t right for them.
Minimum employer contribution
For the first time all qualifying employers will be required to contribute a minimum of 3% (on a band of earnings) to an employee’s workplace pension scheme. This will supplement the 4% contribution from the employee and around 1% from the Government in the form of tax relief.
The personal accounts scheme
From 2012 the Government plans to introduce a new low cost saving vehicle, the personal accounts scheme, aimed at employees who don’t have access to a good quality work based pension scheme - in the main, median to low earners.
Key features of the scheme:
- Trust based occupational pension scheme – run in the best interests of its members
- Low Charges;
- Simplicity.
There will be contribution limit of £3,600 per year (based on 2005 earning levels) and a general ban on transfers in and out the scheme, to focus the scheme on the target market.
The Pensions Bill
The Bill also includes measures to:
- Enforce duties through a compliance regime;
- Extend the remit of the delivery authority;
- Enable the establishment of the personal accounts scheme;
The Government plans to introduce these reforms from 2012.
The Government also plans to introduce a number of State Pensions simplification measures.