Compulsory pensions contributions for all employers from 2012

The Pension Act 2008 has slipped under the radar of many employers but is has the potential of adding significantly to costs. It introduces compulsory pension provision which means that from 2012, employers will need to automatically enrol most of their staff in a pension scheme and pay a contribution by 2014 of at least 3%. Unless a company has in place an occupational scheme that meets the Act’s requirements (known as a “qualifying Workplace Pension Scheme”) it will fall under the umbrella of a national scheme known as ‘Personal Accounts’. The key new responsibilities are:

• Employers must auto-enrol all jobholders in a pension scheme from 2012 if they are aged between 22 and state pension age and earn more than a minimum level of (‘band’) earnings
• Band earnings on which contributions are based are those between £5,035 and £33,540 (although these bands will be revised upwards by 2012)
• A contribution of 8% of band earnings must be paid, with the employer paying at least 3% (this can be phased-in over a period of three years from 2012) – it is made up to 8% by adding 4% from the employee and 1% from the government in the form of tax relief
• Employees can opt-out of the scheme and, if they do, no contributions need to be made on their behalf – fines will be in place for those who coerce employees into opting out
• Employers need to re-enrol employees who opt-out, at least once every three years – so the employee will again be presented with the option of joining the scheme or remaining outside of it

Period for contributions
Year	Company	Employee	Tax relief
2012	1%	0.8%	0.2%
2013	2%	2.4%	0.6%
2014	3%	4%	1%

Source: UK Pension Service

For further advise call Richard Terhorst on 0845 009 5360