Help for firms to automatically enrol staff into workplace pensions from next year became law today, as the Pensions Bill received Royal Assent.
Starting from October 2012 employers will begin to automatically enrol eligible workers into a qualifying pension scheme and contribute to that pension. People who are automatically enrolled will also contribute to the scheme and get tax relief.
Measures such as allowing companies to defer automatic enrolment for up to three months, simplifying the scheme certification process, and greater flexibility on choosing the automatic re-enrolment dates will reduce red tape and cut costs.
As a result, the Pensions Act 2011 will save employers around £170 million each year (in 2011/12 earnings) in contribution costs, £12 million in administrative costs in the first year and £6 million a year in ongoing administrative costs.
Pensions Minister Steve Webb said:
We have addressed the concerns of business, with measures in law to slash bureaucracy and cut costs, saving them around £176 million each year. And we are bringing the reforms in gradually to give firms time to adjust.
Automatic enrolment will get millions saving, giving many low and middle-income workers access to a pension, with a contribution from their employer, for the first time in their lives.
We cannot stand by as life expectancy continues to rise dramatically while those saving in a pension fall into as rapid a decline. Automatic enrolment is necessary. It is good for the country and good for long-term growth.
The measures in the Pensions Act 2011 are:
- An optional waiting period allowing the automatic enrolment date to be deferred for up to three months to help those employing short-term and seasonal staff;
- Simplifying the process for employers to certify that their schemes meet requirements;
- Greater flexibility to choose an automatic re-enrolment date three months either side of the three yearly re-enrolment date; and
- Introducing a new higher earnings threshold for automatic enrolment set initially at £7, 475, to be reviewed every year.
Automatic enrolment will be introduced over four years, starting from October 2012, to give employers time to prepare for automatic enrolment, and large firms will be first to enrol their staff. Small firms will not have to comply until 2014 at the earliest.
The National Employment Savings Trust (NEST) will provide a simple, low cost scheme for all employers who have little or no experience of pensions, and will be particularly suitable for small firms.
The level of pension contributions will be phased in over time to help employers and individuals adjust to the additional costs of the reforms. No-one will have to pay the full contribution until October 2017.
The Pensions Act 2011 also brought forward the increase in State Pension age to 66 by 2020, and women’s State Pension age in line with men’s to 65 by 2018, so that the State Pension remains sustainable for the future. The Government tabled an amendment to ensure no women would experience more than an 18 month increase to their State Pension age.
Notes for Editors:
- The Pensions Bill was introduced to the House of Lords in January 2011.
- The package of measures in the Pensions Act 2011 to help business put in place the recommendations of the independent ‘Making Automatic Enrolment Work Review’, published in October 2010.
- Automatic enrolment will be introduced gradually from 1 October 2012 starting with employers with 120,000 individuals in their PAYE scheme. Those with fewer than 50 individuals in their PAYE scheme will not have to begin enrolling their workers until 1 April 2014 at the earliest. All employers must enrol their staff by 1 September 2016. We are also ensuring those employers with fewer than 10 staff are not required to automatically enrol before 1 April 2014. Full details on staging dates for employers are here: http://www.thepensionsregulator.gov.uk/staging-date-timeline.aspx
- Pension contributions will be phased in from October 2012 to September 2016 as follows.
- from October 2012 these will be 1% from the employer and 1% from the worker (2%).
- from October 2016 to September 2017 they will increase to 2% from the employer, 2% from the worker and 1% tax relief (5%).
- from October 2017 the full minimum contribution of 8% must be paid: 3% from the employer, 4% from the worker and 1% tax relief.
- The Pensions Act 2011 builds on reforms set out in previous legislation. The Pensions Act 2008 introduced measures to encourage greater private saving which included workplace pension reforms. These included new legal duties requiring employers to automatically enrol eligible workers into a qualifying pension scheme; a compliance regime enforced by The Pensions Regulator; and a new workplace pension scheme, the National Employment Savings Trust (NEST).