On 26th November, the Pensions Act 2008 received Royal Assent, meaning that, from April 2012, employees will be automatically enrolled into either their employer's pension scheme or the government’s ‘Personal Account’ scheme, unless they opt out. Employees will pay 4% of earnings, with employers paying 3% and the government contributing 1%.

Employees can choose between the government’s new ‘Personal Account’ pension scheme, their employer’s pensions scheme, if one is available, a private pension scheme from a third party provider, or they can choose to opt out altogether.

Steven Mitchell, Head of Financial Services at Oval Ltd (www.theovalgroup.com) explains why it is not all good news:

“The new Pensions Act is to be welcomed as a means of getting employers to make pension contributions for the 10 million or so employees who currently receive no employer contribution.

However, the timing of these changes is a serious concern. The marked worsening of the economic climate has meant the government has fed billions into the economy, which we will all be paying for in the future with measures like increased National Insurance from 2011.

With much of the Pensions Act coming into force in 2012, this could feel like the last straw for employers and employees alike.

For employees, the changes could be seen as a stealth tax for those who are already seeing higher deductions in their salaries.

For employers, this will act as another tax on employment, with small companies who currently make little or no pension provision being hit the hardest.

Another serious issue is the impact on low earners who would otherwise qualify for Pensions Credits.

Under the current system, low earners who get to the end of their working life and receive a low state pension can claim a top-up in the form of Pension Credits. With the introduction of auto-enrolling into pensions, low paid employees will be encouraged to save for the future but this will push them above the threshold for means tested benefits, meaning they will have paid 3% of their salary for years, only to find that they are no better off at retirement.

Since the pension reforms are here to stay, for employers, it is vital that they act now and take advice on the type of pension provision they should be making and the impact that will have on their balance sheets. For employees, it is never too early to seek advice from an impartial expert about which pension scheme option is best for you.”
 
About the Pensions Act 2008

From April 2012, all employees between 22 and State Pension Age earning more than £5,035 (as at 2006/07), and not in a “good” pension scheme will be automatically enrolled in Personal Accounts. Employees aged between 16 and 22 can choose to join and, if they do, the employer will be required to to pay at least the minimum contribution on their behalf.

Individuals can opt out but will be re-enrolled in the scheme every three years. Employees will pay 4% of earnings, with employers paying 3% and the government contributing 1%, although this will be reduced by income tax relief. Contributions will be based on a band of earnings between £5,035 and £33,500 (as at 2006/07) and indexed each year in line with earnings growth that has taken place by April 2012.

More information about the Pensions Act 2008 can be found here: http://www.thepensionservice.gov.uk/pensions-reform/act2008.asp

Alternativaley please contact:

Steven Mitchell
Tel: 01162471010
Email: steven.mitchell@theovalgroup.com