Delays and extensions the name of the game for 2012 reforms

The Government has issued amended draft regulations today regarding the 2012 pensions reform changes, with further delays and extensions the common theme.

The final rules for the Government’s pensions reform were put before Parliament on Tuesday January 12, 2010, and featured several changes to the draft regulations following a consultation on the original draft in autumn 2009.

The 2012 pensions reforms will now see those who employ less than 50 workers not having to automatically enrol workers into a qualifying pension scheme until sometime between March 2014 and February 2016. New companies setting up after 2012 will also have the time until they need to enrol staff extended, to some date between March and September 2016. Originally, small employers would have taken on their duties in groups at some point between October 2013 and April 2015, and new companies established after October 2012 would have had to enrol staff between April and October 2015.

As well as delays, the amended reforms also feature extensions, with the time that new employees have to be enrolled onto the scheme increased from 14 days to within one month of starting work. The employee is then entitled to a further month in which they may opt out and be treated as never having enrolled as a member. This timescale and process will apply to all types of pension scheme.

The Government’s current ‘19-day rule’, in which time employers must pass pension contributions onto the scheme, has also extended to allow the employer to hold onto contributions for new joiners until the end of the second month. This takes into account the possibility of an employee opting out, and makes reforms simpler, quicker and cheaper for those who do decide to opt out.

The final amendment regards the Government’s recently re-branded National Employment Savings Trust (NEST) scheme, which will not be allowed to accept transfers from other pension schemes, nor allow member to transfer out, in an effort to ensure the scheme is targeted at low and medium earners without any pension provision. Workers will, however, be eligible to transfer these benefits to another regulated pension scheme from retirement age of 55 onwards.

“The changes announced today show that the Government has listened to businesses,” commented Katja Hall, Confederation for British Industry (CBI) director of employment policy. “However, discussions are still taking place about how these reforms will affect firms with existing pension schemes. The Government needs to ensure it does not make the system too onerous for companies who are already doing more than the law will require, or it could encourage them to cut contributions to the legal minimum.”

Andrew Tully, senior pensions policy manager at Standard Life, added: “It is positive that the Government has taken on board employer and industry concerns, and amended their original proposals. Having the same process for trust and contract schemes aids simplicity. And allowing employers more time before they have to pass contributions will reduce the number of refunds which need to be made, saving cost and complexity.”

Source:  Sophie Baker      Pensions age

SSAS clients face tax shock

NEST in a nutshell and FAQs

Five need-to-know facts about NEST:

• NEST is the permanent name of the new national workplace pension scheme being launched in 2011 that is designed to meet the needs of low-to-moderate earners and their employers.
• NEST will be one of the schemes employers can use to fulfil new duties under the workplace pension reforms due to come into effect from 2012.
• NEST will be a low cost, easy to use, online pension scheme that is open to any employer.
• NEST will be run by a not-for-profit trustee corporation called NEST Corporation.
• NEST’s name and logo were developed after an extensive programme of research that involved more than 3,200 jobholders, employers and people who advise employers about pensions.

Read the frequently asked questions about NEST here (PDF, 45kb)

Source: Personal Accounts Delivery Authority

New Compulsory Pension Laws

New laws set up an additional state pension system, known as “personal accounts”, run by an independent body.

The system introduces compulsory pension saving for employees not already members of good company pension schemes. Employers as well as staff will have to make contributions, to improve the level of pension saving in the UK.

There will also be automatic enrolment, and compulsory employer contributions, into existing company pension schemes to encourage fuller take up.

The new system will be operational from 2012 and employees compelled to join the scheme unless they already have a good workplace pension, or choose to opt out.

Contributions will be paid on earnings between £5,000 and £33,500 p.a. and there will be an annual ceiling on total contributions of £3,600. People will not be able to transfer funds from existing pension plans, while contributions will be collected centrally and paid into a choice of investment funds

Personal accounts are part of a wider pension shake-up involving a raising of the state pension age to 68. Staff will pay in four per cent of their salaries and employers three per cent, with an extra one per cent from the Government in the form of tax relief.

Ministers hope that by introducing automatic enrolment they will overcome the barrier of inertia, which is one of the reasons why people do not save enough for their retirement.

About seven million workers are not putting enough away for their old age and the new system will encourage savings from low to moderate earners in particular.

Age Concern said: “We are glad the Government has taken up the Pensions Commission’s recommendations for automatic enrolment into this scheme. However we also want it to invest in providing good quality information and advice about pensions and savings, to help people make informed choices on saving for retirement.

But critics say the Government’s attempts to increase incentives to save for retirement are totally undermined by its obsession with means-testing.

“Many people on low to middle incomes will think twice about setting aside money for old age when Labour’s massive increases in means-testing means that they would simply be saving money for the Government rather than themselves,” said Liberal Democrat spokesman Danny Alexander

And the National Pensioners Convention, Britain’s biggest pensioner organisation, said the Bill would commit a generation of low paid workers to a private pension scheme that could not guarantee they would be above the level for means tested benefits when they retire.

“The money spent on such a financial gamble should be used to strengthen the state pension system rather than unreliable private pensions which lacked public confidence and credibility,” it said.

source: http://www.telegraph.co.uk/news/newstopics/politics/1568488/Law-brings-in-compulsory-pension-saving.html