Personal Accounts Exempt Scheme Test
With the planned introduction for Personal Accounts or personal account pensions in 2012, employers will, for the first time, be forced to contribute to their employees pensions. For more comprehensive details on Personal Accounts, please visit http://www.padeliveryauthority.org.uk/
What is clear is that “personal account” schemes are going to impact on corporate pension planning. If you do not currently make employer contributions, you are going to have to, and if you do already make contributions, you will have to review your procedures and make sure they are compliant with the new legislation.
If you have a pension scheme at the moment, it is likely to need to at least match that on offer from the Personal Account policies. There will be what is known as an Exempt Scheme Test, and some details are slowly starting to trickle out as to what shape this is likely to take.
Even without these full details yet, employers are going to fall into two broad categories; those who pay into a pension plan and want to know how this will impact on them, and those who do not currently offer employees a pension and want to plan for change.
Companies with a pension arrangement
Just because you pay into a pension, does not mean you are exempt from this legislation. Unless your scheme is “good enough” to allow you to effectively ignore personal accounts legislation, you will need to have a Personal Account pension in place. As mentioned, it is expected that some sort of scheme exemption test will be created.
If your scheme passes this test, and currently it sounds like that may be hard, you will only have to make some small changes if any, for example introducing an auto enrolment facility. The exact format of any such test is yet to be clarified but it is likely to include the following:
Are company contributions at least 3% of employee earnings (this may be total earnings and not band earnings)?
- Do employees pay at least 4% into the arrangement?
- What are the investment choices, and how are they decided on?
- How will employees opt out of the scheme?
Managing upcoming regulatory changes are what we do for our existing corporate clients. If you would like a pro-active service for your employee benefits, we could do that for you too. If you would like to be contacted with details once they are known please contact us here and we will be back in touch.
Employers without existing pension arrangements
If you do not currently make employer contributions into a pension scheme, you will be compelled to do so from 2012. You may want to plan for this cost and discuss ways to use advisory services to get value from an expense that you will have no choice but to meet.
For example, if you were already thinking of introducing a pension scheme for the purposes of staff recruitment and retention, will the personal accounts proposal meet your goals of being better than the competition? or will compliance just make you legal.
Issues you may consider are:
- Why do you wish to offer a contributory pension scheme, and what you hope to gain from it.
- Do you want professional advice from a financial adviser to help your staff understand the benefits
- What are the charges
- What are the investment options, How many funds etc
- Is on-line access important
- What admin can you cope with in-house, what would you prefer to outsource.
It may be that as a result of these issues, you decide that you would like to implement a scheme which is exempt from the personal account pension legislation. The details of what will make a scheme exempt have not been finalised, however, current thinking is that one issue will be that contributions will need to be 8% of total earnings, not just salary, which is a very big difference.
This situation is fluid, and is likely to change between now and when the policy is finally implements. Please visit http://www.padeliveryauthority.org.uk/ for more information, or check back for updates on the situation.
This site will report further details as and when they are known. If you would like to know more about how Jigsaw can help you benefit from the introduction of personal accounts please take advantage of our FREE no-obligation review and analysis by contacting us here.
