THE Pensions Act 2008 contains many new provisions which will be implemented gradually from October 1, 2012, and which will affect all employers of all sizes.
A key element to the Act will be a requirement on companies to automatically enrol jobholders in a pension scheme which meets certain criteria.
To further this requirement, the Government has established a scheme known as NEST National Employment Savings Trust which employers can use. Alternatively, the majority of schemes already operated by employers will be suitable to meet the new rules.
When the changes take effect, employers will be required to automatically enrol an employee into a qualifying pension scheme, be that their own scheme which meets the relevant criteria or the Government operated NEST.
The employer can delay enrolment to the scheme by up to a maximum of three months for new employees.
For an employee to become eligible for enrolment into a scheme, they must be between age 22 and state pension age and earn more than the income tax personal allowance, which is currently £7,745.
Interestingly, as well as employees, agency workers will fall under the new provisions, as the legislation uses the word jobholder more wide-ranging than just employed workers.
A further key element is that, once a jobholder is enrolled into NEST, the employer is required to pay contributions of 3% of basic salary each year, with the employee contributing 5%.
Both of these provisions are expected to be phased in over five years to ease the burden on businesses and workers.
Jobholders will have a right to opt out of being enrolled into any pension scheme, including a NEST. A further requirement on employers will then be for them to re-enrol such workers every three years.
Employees may opt in again on giving notice to the employer and those who earn below the income tax personal allowance can enrol; though there will be no obligation on the employer to make contributions in such circumstances.
In terms of compliance, the legislation provides for criminal and civil penalties for failing to comply with the rules and breaching duties.
In particular large employers can be liable for escalating penalties of up to £10,000 per day. Enforcement is likely to be overseen by the Pensions Regulator, with day-to-day enforcement passed to private sector businesses.
The NEST Corporation has now produced a phrasebook to assist employers and employees in understanding pensions in the future.
The aim is to resolve the concern that existing pensions language can be a barrier to understanding by keeping it simple, being open and honest without baffling with jargon or mystifying with complexity and providing step-by-step instructions where possible.
As we move closer to the initial implementation date of October 1, 2012, further guidance will be published by the Government and the NEST Corporation and we will begin to understand what provisions of the Pensions Act will be implemented on which dates.