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State pensions and mandatory schemes

Contributions Do employers and/or employees make pension contributions to the government in your jurisdiction? If so, briefly outline the existing state pension system.

The government provides a state pension. Until April 2016, the state pension comprised a basic flat-rate element and an earnings-related top-up. Since April 2016, this has been replaced by a single-tier flat-rate pension.

The state pension is funded by employer and employee contributions known as ‘national insurance contributions’ (NICs). Both employer and employee NICs are calculated as a percentage of the employee’s earnings and, in the case of employee NICs, are deducted from the employee’s salary in the same way as income tax.

An individual’s eligibility for the state pension and the amount of state pension paid depend on the number of years in which NICs have been paid in respect of the individual.

Can employers deduct any state pension contributions from their taxable income?

Yes. Employers can deduct the amount of employer NICs paid when calculating their taxable income.

Are there any proposals to reform or amend the existing system?

The age at which individuals can take their state pension is currently 65 years old for men and 64 to 65 years old for women. The state pension age for all women will be equalised to 65 years old by November 2018.

The state pension age will then increase for both men and women to:

  • 66 years old between 2019 and 2020;
  • 67 years old between 2026 and 2028; and
  • 68 years old between 2037 and 2039.

Other mandatory schemes Are employers required to arrange or contribute to supplementary pension schemes for employees? If so, briefly outline how the scheme is enforced and regulated.

Under ‘automatic enrolment’, employers must:

  • enrol certain employees (‘eligible jobholders’) into a qualifying pension scheme;
  • grant certain other employees (‘non-eligible jobholders’) the right to join a qualifying pension scheme; and
  • grant all other workers the right to join a registered pension scheme, although not necessarily one to which the employer contributes.

The automatic enrolment duty applies to an employer from its ‘staging date’ – a date between 2012 and 2018 (the larger the employer’s April 2012 payroll, the earlier the staging date). Jobholders who have been automatically enrolled have a statutory right to opt out within one month.

In order to be a qualifying pension scheme for automatic enrolment purposes, a scheme must meet certain prescribed quality requirements. These differ depending on the types of benefit provided by the scheme. Qualifying pension schemes must also generally be registered pension schemes. A registered pension scheme is a scheme that is registered with Her Majesty’s Revenue and Customs and meets certain prescribed requirements in order to receive favourable tax treatment.

The Pensions Regulator is responsible for enforcing and regulating the automatic enrolment regime. It has a number of powers in this respect, including the power to:

  • issue compliance notices which require the recipient to take or refrain from taking particular steps; and
  • issue fixed and escalating monetary penalty notices.

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