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Personal Accounts Pension Scheme Outlined

The Pensions Act 2008 which received Royal Assent on 26 November 2008 will introduce a statutory obligation on employers to contribute to a pension scheme from April 2012. Under the Act the Government plans to establish the Personal Accounts Pension Scheme. Employers will be faced with the following obligations:

• Employers will be required to automatically enrol employees aged 22+ (but under the state pension age) and earning over approximately £5,000 into the Scheme.
• Employers will be required to contribute at least 3% of qualifying earnings (i.e. earnings between approximately £5,000 and £33,500). Employees will contribute 4% of qualifying earnings and the Government will pay in a tax credit of approximately 1%. Contribution rates are likely to be phased over a period of time. Members may pay more, but total annual contributions per member will be limited to approximately £3,600.
• This requirement will not apply to employees who are already members of a qualifying scheme if it is a money purchase scheme, employer contributions must be at least 3% of qualifying earnings and total contributions must be at least 8% for the scheme to qualify. If it is a defined benefit scheme, it will need to be contracted.
• These obligations will not apply to new employees if the employer automatically enrols them into a qualifying pension scheme and does not require employees to provide information or make any choice before joining.
• Opt out provisions for employees will be provided.
• The Pensions Regulator will have power to impose sanctions against employers who fail to enroll employees or who fail to pay contributions expected to be a fixed penalty of £50,000 with increments of £10,000 for every day an employer continues to breach the rules.

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