Standard Life

Keeping you ahead of change

Pension reform
 

It's not just the Olympics that are happening in 2012. There will also be changes to the pension landscape, with the Government bringing in new responsibilities for employers to provide pensions for their staff.

Why is it happening?

The Government wants to increase the number of people saving for their own retirement.
The pension reforms mean that employers will have to make pension provision for their staff.
This means either automatically enrolling them in company pension plans or in NEST (National Employment Savings Trust), a new national pension plan.

Essentially, the number of people saving for their future beyond work should increase as most employees will automatically become part of their employer's pension plans.
What it means for you?

We'll regularly update this site with all the latest developments on pension reform - so add it to your favorites and keep abreast of the changes.

Click on the relevant link to find out what the reforms may mean for you:

Quick Facts Quick Facts
Quick Facts
  • Fact One
    Starting from 2012, the very largest employers will have to start automatically enrolling their eligible employees into a qualifying pension scheme and make pension payments for them.
  • Fact Two
    The new employer duties are being introduced in stages, starting in October 2012 with the very largest employers and gradually being rolled out to cover all employers by September 2016.
  • Fact Three
    The employer's chosen qualifying pension scheme must provide total payments of at least 8% of band earnings by October 2017, with the employer paying at least 3% of that.
  • Fact Four
    The minimium payments will be gradually stepped-up from 2% to 5% then the full 8%, to reduce the financial impact on employers and employees.
  • Fact Five
    Employers can base payments on their usual pensionable pay definition, rather than band earnings, if they can certify they meet an alternative standard(ranging from 7% of total pay to 9% of basic pay).
  • Fact Six
    Band earning are earnings between £5,715 and £38,185, based on 2010/11 salaries, and includes commission, overtime, bonus and statutory payments such as sick pay and maternity pay. The band will be reviewed each year to reflect increases in average earnings.
  • Fact Seven
    Employers must auto-enrol staff aged between 22 and state pension age who earn at least £7,475 a year into a qualifying pension scheme within 3 months of the date the new employer duties apply to them (or within 3 months of them qualifying for auto enrolment, if later).
  • Fact Eight
    Employees under the age of 22, over state pension age or earning less than £7,475 a year do not have to be automatically enrolled but can opt in. If they earn over £5,715 (in 2010/2011 terms), they must then receive an employer pension payment.
  • Fact Nine
    Employees can opt out of the pension scheme they are enrolled in although it will mean that they lose the employer payment.
  • Fact Ten
    To make sure employers meet their new duties, the Pensions Regulator will run a strict compliance regime backed up by enforcement notices, fines and ultimately jail sentences.
Pension Reform – A Review of Automatic Enrolment

Changes to pensions reform announced

The new coalition Government asked an independent team to carry out a review of the planned pension reform changes – which are due to be introduced from 2012. The Department for Work and Pensions has recently confirmed it has accepted the proposals made by the review team and they will now be implemented.

The key elements of the pension reform framework will remain in place:

  • The requirement to automatically enrol eligible employees into a qualifying pension scheme, and make pension payments for them, will apply to all employers regardless of size.

  • Automatic enrolment will be introduced from October 2012 onwards as previously proposed. This will be a staged introduction based on the size of the employer.

  • The National Employment Savings Trust (NEST) will go ahead as planned. This is a basic national pension plan which any employer can use to fulfill their duties.

There are, however, some welcome relaxations from the previous proposals:

  • Employers will only have to auto-enrol employees earning at least the personal allowance for income tax (£7,475 for 2011/12), although contributions will be based on earnings above the National Insurance primary earnings threshold (currently £5,715). Employees earning between these levels will be able to opt-in and receive an employer contribution.

  • There will be an optional waiting period of up to three months before an employee needs to be automatically enrolled. Employees will be able to opt-in during the waiting period.

  • There should be a simple system for employers to certify their existing scheme meets the required contribution levels. A scheme will meet the requirements if there is a minimum contribution of:

  • 9% of basic pay, with the employer paying a minimum of 4%, or

  • 8% of pensionable pay, with at least 3% from the employer - as long as pensionable pay is at least 85% of total pay (across the workforce), or

  • 7% of total pay (with at least 3% from the employer).

  • The largest employers who are due to start auto-enrolling in October and November 2012 will, if they want to, be able to auto-enrol from July 2012.