Hi everyone,
When the recently announced auto-enrolment requirements hit employers in 2012 they will have to enrol all their eligible employees into a workplace pension scheme. As it stands at the moment, if they don’t set up their own scheme they will have to use Personal Accounts instead.
Personal Accounts use a one size fits all approach. This means that employers will have no say in how the pension is set up and run. The risk that competitors will be offering more attractive pensions could therefore make it more difficult to attract and retain quality employees.
So the big decision for employers is very clear. Should they simply satisfy the regulator or do they position themselves as an employer of choice by offering a tailored pension that suits the needs of their workforce and their industry?
One thing is for sure though. If employers are to be ready for the impact of auto-enrolment on their businesses, they need to take action sooner, rather than later.
What Exactly are Personal Accounts?
To help encourage saving for retirement, the Government is introducing a new low-cost saving scheme – it’s currently called Personal Accounts. This will be introduced from 2012 and employees who do not offer access to a suitable alternative pension arrangement will be able to use personal accounts for their employees.
Employees will be automatically enrolled in the scheme but will have the opportunity to say they do not want to join. They will also be able to come out again at a later date if they want to.
Contributions will be paid by employees and employers and invested in a range of funds. At retirement, the accumulated fund will be used to provide an income for the member’s lifetime.
Members of the scheme and their employers can pay additional contributions above the specified levels if they so desire. However, there will be an overall limit of £3600 on the total amount that can be invested in the scheme each year.
Personal Accounts will be run by a board of trustees. The trustees will run the scheme independent of Government and the scheme will be regulated by The Pensions Regulator in common with all other occupational pension schemes.
What is Auto- enrolment?
This is basically a situation where employees are automatically entered into a pension scheme without any need for them to apply. Many employees fail to join valuable pension schemes when there is a need for them to go through an application process first. Auto-enrolment is meant to overcome this obstacle.
When the pension reforms are introduced in 2012, all eligible employees will have to be auto-enrolled into a qualifying pension scheme. Employers will be able to choose which qualifying scheme to use, including the new personal accounts scheme.
All qualifying schemes must meet minimum standards, either of the benefits it provides or the amount of contributions paid to it, and must also provide auto-enrolment for all eligible employees who have not already joined the arrangement and for all new employees when they become eligible.
If you are an employer or a concerned employee and want to find out more about the implications and possible solutions relating to these legislative changes then please drop me a line and help explain your obligations.
Until next time….
