Companies may opt to feather Nest pension schemes

Q I have heard that from 2012 private sector employers will be required to enrol their employees into a pension scheme? Is this true? If so, how will this affect me and what will happen to my existing company pension scheme?

DS Edinburgh

AIt is true that automatic enrolment, as it is called, will affect every UK employer. All employers will need to ensure they follow a set of guidelines and criteria which have been outlined by the government. Automatic enrolment applies to the following:

n Employees who are not already in a qualifying workplace pension scheme;

n All employees who are at least 22, but have not yet reached the state pension age;

n Employees who earn more than the minimum earnings threshold, which is likely to be £7,475 pa (tax year 2011-12);

n Employees who work or ordinarily work in the United Kingdom

Although the start date for these changes is 2012, the implementation of the scheme will take place in phases over several years.

Larger companies are required to implement this by the end of 2012 and smaller employers may be able to wait until as late as 2016. Each employer will have their own introduction (staging) date depending on the size of their PAYE.

Companies with existing pension schemes will be able to continue with them. As long as an employer complies with the automatic enrolment regulations, they can choose whether to use their existing pension scheme, the new National Employment Savings Trust (Nest) or a combination of the two.

The new Nest scheme, into which employees will be enrolled if their employer doesn’t enrol them into an existing pension scheme, will be open to any size of company. In fact, Nest can be used as a standalone pension scheme, sit alongside an existing qualifying workplace pension scheme, or even be used as a scheme for certain categories of employees, such as seasonal workers, new joiners or even staff taking career breaks.

If an employer decides to use its existing company pension scheme, it must ensure that it meets the minimum requirements to be a qualifying workplace pension scheme. The details on the minimum requirements are still to be finalised, but it is expected to involve a minimum contribution from an employer for each employee equal to 3 per cent of their salary.

There will be the opportunity for employees to choose to “opt out” of the pension scheme if they don’t wish to contribute, but employers can’t be seen to encourage this.

l Adam Riley is an employee benefits consultant at PKF Financial Planning Ltd

If you have a question you need answered, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd accepts no liability on the basis of this article.