Pension Changes 2012 – Auto-Enrolment



Pension Changes 2012

Auto-Enrolment

What is Auto-Enrolment?

Auto-Enrolment is the process where employees are automatically entered into a workplace pension plan. From 2012 pensions will be accessed to more people t work, to help them save for their retirement years. Employers will be expected to enrol all eligible employees into a qualifying pension and make minimum contributions into the scheme.

Currently, over half of UK employees fail to join valuable pension schemes; auto-enrolment is expected to tackle this issue. These can either be an employer-sponsored plan or a new national pension plan (National Employment Savings Trust-NEST).

If you are eligible, your employee will accordingly enrol you into the pension plan automatically but you do have the option to opt out if you prefer.

Considering you remain opted in, your employer will make a minimum contribution to the scheme on your behalf. In many cases you will also need to make a contribution but your employer may pay your contribution for you. You will also receive government tax relief.

All qualifying schemes need to meet minimum requirements, either in terms of benefits or contribution amount and must provide auto-enrolment for you if you are eligible or when you become eligible if you have not already joined the arrangement.

The company pension scheme 2012, will be run by a board of trustees independent of Government and will be regulated by The Pensions Regulator in accordance with all alternative occupational pension plans.

When is it happening?

Auto-enrolment is due to be put into place from 1 October 2012, the official start date for the next big pension reforms. Existing plans are to introduce these changes gradually, fazing them in over the four years succeeding the 2012 start date.

To help businesses better prepare for the administration changes and costs of auto-enrolment the government has planned to introduce it in stages. The plan is to phase in the minimum contribution levels to help employers and employees gradually adjust.

The phasing-in of companies will be based on their size and should be fully completed by September 2016.

Large employers will be forced to implement these pension changes in October 2012 start date, with more than 120 employees, followed by medium-sized and then smaller employers which should finish four years later.

Contribution payments will also be implemented gradually between the years of 2012 and 2017. Between October 2012 and October 2016 a minimum contribution of 2% earning is required, with at least 1% for the employer. The following year the minimum contributions will rise to 5%, with at least2% from the employer. After October 2017 total minimum contributions are set to rise to 8%, with 3% from the employer.

Why is it happening?

The introduction of National Employment Savings Trust (NEST) comes as a government move to encourage retirement saving.

The UK currently has the largest pension gap in the whole of Europe with workers saving £317.5bn a year too little pensions.

Britons continue to under save by up to £10,300 every year, with baby boomers set to spark a 19% rise in the number of people turning 65 from the previous year, more pressure is mounting for people to save toward their pension pot and better invest to ensure a comfortable retirement.

If your employer does not currently offer access to a suitable pension arrangement you will be automatically entitled to use personal accounts to save for your pension in 2012.

It is believed that many workers do not currently take advantage of workplace pension schemes simply because they cannot be bothered to join. Auto-enrolment tackles this problem by automatically entering you, if eligible, into a pension scheme.

Pros

A workplace pension scheme will be made readily available to all eligible employees across the UK so you don’t have to worry about setting one up yourself. The scheme is available to you if you are employed and aged 22 and over so it enables you to start saving from an early age and rack up a small fortune by the time you reach retirement.

Pension contributions 2012 will be paid by you and your employer and invested in a range of funds, at retirement the accumulated fund will be used to provide an income throughout the rest of your lifetime. So, when you do finally reach retirement you will have built a tidy sum in order to retire comfortably.

As an employee you will automatically be enrolled into your work pension scheme but will have the opportunity to opt out or not join if you wish. Although you will also have the opportunity to opt out at a later date if you decide to join.

Employers can decide to auto-enrol you into either an occupational pension scheme or a qualifying Workplace Personal Pension.

Cons

There will be a limit to the total amount that can be invested into the scheme each year which set at present is set at £3600 pa.

There is also an eligibility criterion which determines whether you will be entitled to auto-enrolment from your employer.

Auto-enrolment regulations 2012 may be further changed and refined so it is important to try and keep up to date with any changes occured.

Important Facts

Everyone in the UK will be auto-enrolled in the scheme provided you fall under the following criteria:

  • You are an employee aged 22 or over.
  • You have not reached state pension age.
  • Earn over £5,035 per year
  • You are not already a member of a suitable pension scheme.

If you are a staff member who does not meet the eligibility requirements to join your employer’s existing scheme but still fall under the auto-enrolment criteria they will need to enter you into the NEST scheme.

If you do not meet the criteria, perhaps you are below the age of 22, you can still ask to be enrolled in which case your employer will need to make minimum contributions into your pension plan.

If your company does not currently have a work pension scheme they can either introduce a qualifying scheme or auto-enroll you in NEST in 2012. Remember in each case both you and employer will need to make minimum contributions.

Your employer will not be required to auto-enrol you into the NEST if you are an existing member of a final salary pension scheme, money purchase pension scheme or personal pension scheme that meet certain minimum standards and levels of employer contributions.

Your employer may decide to replace any of these existing schemes with NEST they must offer you access to a stakeholder pension if eligible.  However, be sure that your employer checks your contractual rights before withdrawing from any scheme and goes through a consultation process with you.

If you would like to find out more information about auto-enrolment and NEST you can contact The Pensions Advisory Service (TPAS).

Summary

The main advantage of auto-enrolment is that all members of staff will now be able to save for retirement and benefit from employer contribution that perhaps was not at available beforehand.

If you have previously not joined your employer’s pension scheme it may be worthwhile joining one now for the time being as you will be auto-enrolled in 2012 anyway. By starting to save earlier now the more you are likely to end up saving through to retirement.


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Stakeholder Pension

Personal Pension

NEST

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