How Will The 2012 Pension Changes Affect You?

How Will The 2012 Pension Changes Affect You?

by Paul Forrest on 27 Mar, 2012

The UK government is introducing new legislation to ensure workers make provision for their retirement. Employers will be expected to provide an adequate pension scheme for all eligible employees.

The government is concerned that approximately 7 million people are failing to save up for their retirement. People are living longer; therefore they should save more money to help them after they retire.

Eligible employees are workers who are aged from 22 years of age up to retirement age. They earn more than the minimum tax threshold, currently £7,475 per year; and they do not already belong to an appropriate pension scheme.

Should employers not provide a pension scheme, eligible employees will be automatically enrolled into a pension scheme operated by the National Employers Savings Trust (NEST).

Employers and employees will each have to make a minimum contribution to the pension scheme. Contribution levels will be phased in, on a sliding scale. From October 2012 until October 2016, employers will have to pay 1%, as will employees. Between October 2016 and October 2017, the combined minimum total will be 5%, employers paying 2%. The combined level of contributions will have to be 8% of annual income, as from October 2017; employers contributing at least 3%,

The new scheme, to be known as auto enrolment pensions, will be introduced in stages, depending on the size of the company. Firms who employ more than 30,000 workers will need to comply from October 2012. Companies employing at least 350 people will need to have the new scheme in place by 2013. Smaller businesses, with 350 or fewer workers, have until 2016 to ensure their employees have been given the opportunity to join a pension scheme.

Workers can choose to opt out of the new system; in which case they will need to belong to either a stakeholder pension or a private pension scheme.

Employers who already offer a company pension will be able to continue with existing arrangements as long as their current pension provision falls within the requirements of the auto enrolment schemes.

There will be financial penalties incurred by bosses who do not comply with the auto enrolment scheme. Companies will need to budget for the provision of the scheme, preferably from the earliest possible timescale. Employers who leave their planning until the last minute may find themselves with a financial shortfall. Bosses need also to be aware that, although eligible employees are between the ages of 22 and retirement age, workers aged between 16 and 22, also those who choose to work beyond the state retirement age until they are 75, can choose to be enrolled.

There are many useful resources to help employers plan for the introduction of auto enrolment pensions available on the websites of The Department of Works and Pensions (DWP), NEST and a number of pensions and insurance providers.

See other articles on Uk Money Market on the subjects of pensions and retirement.

About the Author

Paul Forrest

Paul Forrest is an experienced writer in many fields of interest and we are delighted that he will now be a regular contributor to in 2012.