As you may or may not be aware, the Government is reforming workplace pension provision.

The reason for the Pension reforms is that at the rate the population of the UK is growing, the projections suggest that the number of people aged 65 and over, will almost double by the year 2055.

The Department for Work and Pensions (DWP) has estimated that some seven million people are not saving enough to be able to obtain the pension income they will need in retirement.

Consequently, the Government has introduced the Pensions Act 2008, which will reform workplace pension provision.

Under the Act, employers will be required to enrol eligible employees into a scheme, which meets certain criteria, and make minimum contributions.  This is to be called auto-enrolment.

Automatic enrolment does not mean that employers will no longer have the freedom to choose the best pension scheme for their employees.  What automatic enrolment does mean is that employers can choose the pension scheme they believe is the most appropriate for their employees, including schemes that they currently run, but the new duties will mean that there will be minimum requirements for workplace pension provision.  Therefore, whichever scheme employers choose, it will have to meet the new minimum requirements in order to comply with the legislation.

These reforms will be introduced in stages from October 2012 with some employers being affected before others.  It is proposed that employers will have to contribute a minimum of 3% on a band of earnings for their employees, although they can contribute more than this.  The total minimum contribution for workers must be 8% of the band of earnings.  This will be made up of employer contributions, worker contributions and tax relief.

It is intended that contributions will be phased in commencing at 1% and increasing gradually to the minimum level.  This is designed to help employers and employees adjust to costs.

One such scheme that employers may choose, is the Personal Account scheme which will be an independent scheme run by a not-for-profit trustee corporation, accountable directly to Parliament.  This will be known as the National Employment Savings Trust (NEST). 

You may think that we are being premature in advising you of these reforms.  However, we do not think so particularly as Regulations are now being published which will govern how the new scheme will work, with a set of Regulations published on 12th January 2010.

Employers and eligible workers should now be planning ahead as the minimum contributions for both employers and employees will be compulsory.

For further information please do not hesitate to contact the ELAS enquiry line on 0161 785 2000.