Companies required to Auto-Enrol Employees to Pension Schemes from 2012

From 6th April 2012 UK employers will, for the first time, have a duty to automatically enrol their employees into their pension scheme (or the new Personal Accounts scheme) and meet minimum contribution criteria.

These reforms to private pensions have been designed principally with people on lower income in mind to encourage greater pension provision. However, the legislation affects everyone.

The main points that you need to be aware of in relation to the changes are as follows:

• Companies will have to offer a “qualifying” pension scheme for those employees aged between 22 and State Pension age earning between £5000 and £33,500 a year. Non-compliance will result in fines being imposed.
• For defined contribution schemes, contributions must be at least 8% of earning, including at least 3% from the employer.
• Company pension schemes must meet other specified minimum qualifying criteria, including employees being automatically enrolled. Employees can opt-out, however, if they do opt-out they will be automatically re-enrolled within a certain period.
• Companies who do not wish to use or adapt there existing scheme(s) to meet all the “qualifying criteria” can select the Personal Accounts scheme for some or all of their workforce.

The legislation (expected to receive Royal Assent shortly) will clearly have cost implications and will require new and effective administrative procedures.