Pension Reforms in October 2012

These pension reforms that were introduces in legislation of November 2008were designed to encourage greater private saving.

The important measures in the act will come into effect from October 2012 unless there are significant changes by the coalition government announced in September this year. The review team is on schedule to report to Steve Webb, the Minister for Pensions at this time.

The Key area’s for Reform, that will affect employers are

- Compulsory employer and worker contributions to be phased in
- Workers to be automatically enrolled in a National Employment Savings Trust (NEST), a government introduced scheme
- A straightforward qualifying regime meaning schemes already in existence will already meet the criteria
- A government department compliance regime.

Workers eligible to be forcibly enrolled will be
- Any worker not already in a scheme
- Aged between 22 and state retirement age
- Working in the UK

Employers will have to contribute 3% of the employees qualifying earnings which is anything between £5035.00 and £33,540.00.

From 1st October 2012 employers will pay 1% and employees 0.8% (0.2% tax relief)

From October 2016 to 2017 employers pay 2% and employees pay 2.4% (0.6% tax relief)

After October 2017 employers pay 3% and employees pays 4% (1% tax relief)

This is in effect another tax, similar to National Insurance and therefore will complicate the administration of PAYE contradicting the government’s current consultation on simplifying the PAYE system.

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