Pensions Act 2008

Questions and Answers

The Government is introducing laws that will affect 10 million workers and most employers. Little has been written so far, but many questions will be asked. Here, our Independent Financial Advisers, Coniscliffe Financial Planning Limited (see below) answer the most common.

Isn't this similar to Stakeholder Pensions?

When the Government introduced Stakeholder Pensions in 2001, the objective was to encourage people to save in low cost, easy to understand pension plans. However, Stakeholder Pensions have not worked, millions are not saving for their retirement. With changes in demographics (an ageing population), there is concern that there is a looming crisis, and something needs to be done now. Stakeholder Pensions created a facility without a significant take-up.

The Pensions Act 2008 is to introduce compulsory contributions for the first time. The new plans will be known as Personal Accounts.

What are the contributions?

The employer will pay 3% of earnings and the employee will pay 4% of earnings, with 1% tax relief. This adds up to a total funding rate of 8% per employee.

The contributions are based on earnings between £5,035 and £33,540 a year.

The legislation envisages an implementation period over a three year period, eg 1% in year one, 2% in year two and 3% in year three.

When will this start?

In 2012.

Who qualifies?

All employees will automatically be enrolled from their first day of work if they earn more than £5,035 and are over age 22 and younger than State Pension age.

Are there any exceptions?

Only if you already have an occupational scheme which satisfies certain criteria, ie Defined Contribution schemes with funding rates of 8% (with 3% from the employer) or a Defined Benefit scheme with an accrual rate of at least 1/80ths.

Matching benefits will not be enough. Employers will need to automatically enrol their employees into a scheme. If you have an existing 'quality' scheme, you can operate a three month deferral period before offering membership, but this is likely to be for schemes that offer between 6% and 10% employer contributions. Only employees can decide they do not want to participate.

What about temporary or seasonal workers?

All workers will be enrolled, however, agency workers will have contributions paid by whoever is responsible for paying their wages.

If we don't enrol our employees what will the consequences be?

The regulation is fairly clear on this. Fines will be levied up to £50,000 for a breach in the rules.

Are things likely to change between now and 2012?

We think not, the Bill has received Royal Assent (on 26 November 2008), plus the Bill enjoys support from the Conservatives and Liberal Democrats.

However, if there are changes you will be able to read about them here.

What do I need to do?

You have many options, we suggest:-

1 Be proactive - don't wait for the legislation to be implemented before taking action.

2 Factor in the cost, perhaps at future appraisals.

3 Take genuine independent advice, speak to Richard James on 01325 349707 or email your queries to advice@coniscliffe.com.

This information is supplied by Richard James our authorised Independent Financial Adviser. Richard is Managing Director of Coniscliffe Financial Planning Limited who are appointed representatives of 2020 Financial Services Limited.

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