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Pension reform and auto enrolment – the rules explained

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Thursday June 13, 2013 at 10:00am

In the UK today whilst life expectancy is on the increase it seems fewer people are saving for their retirement. To try and meet this challenge, the Pensions Act 2008 laid the foundations for a fundamental reform of workplace pensions requiring every employer to automatically enrol their workers into a qualifying pension scheme, if they are not already in one, and contribute to that pension. Under the scheme by 2017 all employers will have to offer a workplace pension or a NEST (National Employment Savings Trust) as they are called.

The start date for the rollout of the changes was October 2012 and at that time only employers with 120,000 workers or more were affected. For those with a more modest workforce the start date varies, for example those with less than 500 workers the date is 1 January 2014 and for those with less than 50 workers the earliest start date is 1 August 2014. So, it may seem some way off, but now might be a good time to review the pension arrangements you have in place for yourself, your fellow owners or directors and your employees.

After all when your time comes you will be forced to act. Under the new rules an employer is required to:

  • provide a qualifying scheme for all workers
  • automatically enrol all eligible jobholders into the scheme
  • pay employer contributions
  • tell all eligible jobholders that they have been automatically enrolled and they have the right to opt out
  • register with The Pensions Regulator and give them details of your qualifying scheme and the number of people that you have automatically enrolled.

The only exceptions will be workers who earn a low wage (currently £8,105 gross per year), those people who are already active members of a qualifying pension scheme and those under 22 years of age or over the State Pension age.

Your existing employer pension scheme may be used, if you have one, but it will need to meet certain conditions.You are required to automatically enrol eligible workers and must not encourage then to opt out!

There’s more information on a new website set up to explain the NEST to employers and employees but most business owners at the SME end of the market will need help and advice to make sure the scheme they establish meets both the regulator’s requirements and their needs as a business.

Andy Parker
Chartered Accountant and Chartered Financial Planner

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here