Currently, employers who employ five or more employees will usually have to provide their employees with access to a stakeholder pension scheme, which it has designated, or a qualifying alternative.
Employees are not required to join the pension scheme and, if they do, employers are not required to contribute to it. However, from April 2012, 'personal accounts' will be introduced and employers will have to:
- automatically enrol employees who are aged between 22 and state pension age and who earn over £5,715 per year (in today's terms) into a qualifying workplace pension arrangement - employees can choose to opt-out of the scheme;
- choose a qualifying scheme or qualifying schemes to discharge their new duty; and
- make a minimum contribution of 3% of 'band earnings' towards a money purchase pension, or offer membership of a defined benefit scheme with equivalent or better benefits.
It is anticipated that the compulsory employer contribution will be phased in over a three-year period at the rate of 1% each year.
In addition to the employer contributions to be paid, each employee will be required to pay a minimum contribution of 4% of 'band earnings': this minimum contribution will also likely be phased in. The Government will pay a contribution of 1% of 'band earnings' in the form of tax relief. 'Band earnings' are likely to be earnings between £5,715 and £43,875 per year (in today's terms).
The Pensions Regulator will be responsible for ensuring that employers meet their obligations under the personal accounts legislation. At a recent seminar, a spokesman for the Regulator confirmed that, once the personal accounts system comes into force, employers will "see a very different Regulator".
The Regulator confirmed that it will focus on educating employers and on enabling them to meet their new auto-enrolment duties, but that it will take enforcement action where necessary. It was also suggested that the non-compliance provisions will be very rules-based, which, if the Regulator follows its usual approach, should make complying with the statutory requirements relatively straightforward for employers