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News
Another round on pensions
Pension Acts have become rather like London buses recently. After a gap from 1995, there have been three Pension Acts in the last five years. The most recent is the Pensions Act 2008, which makes three important changes.
Personal accounts The personal account is the latest government initiative to encourage private pension provision. If you are an employer, no matter how few your staff, personal accounts are likely to affect you.
• Any employee aged between 22 and the state pension age with earnings of at least £5,035 a year (in 2006/07 terms) must be automatically enrolled in the personal account pension scheme if they are not already a member of a scheme that is at least as good in terms of benefits or total contributions.
• For each personal account member, the employer must pay contributions of at least 3% of all earnings - not just basic pay - between £5,035 and £33,540 ('band earnings' - again in 2006/07 terms).
• The employee must pay sufficient personal contributions to bring total contributions (including employee tax relief) up to 8% of band earnings. In practice, this is likely to mean that the employee pays 4%, the employer pays 3% and tax relief on the employee's contributions brings the total to 8%.
• Employees will have the right to opt out, but if they do so they will be automatically re-enrolled every three years or when they change job.
The target date for launching personal accounts is October 2012, although this is by no means fixed. In any event, contribution levels will be phased in over at least three years from launch.
Contracting out The Act provides for an end to opting out (technically 'contracting out') of the state second pension scheme (S2P) by way of personal pensions or money purchase occupational schemes. No date has yet been set, although the expectation is that it will be April 2012. If you are a member of a final salary (defined benefit) contracted out scheme, the change will not affect you.
Preserved pensions If you leave a final salary scheme after 5 April 2009, eg on changing job, the Act will reduce the statutory inflation protection given to part of your pension benefits. For all benefits accrued after that date, the statutory increase until retirement will be the lesser of inflation and 2.5% a year, compared with the present ceiling of 5%.
If you need help in planning for these changes, let us know. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on individual circumstances.
Pension Acts have become rather like London buses recently. After a gap from 1995, there have been three Pension Acts in the last five years. The most recent is the Pensions Act 2008, which makes three important changes.
Personal accounts The personal account is the latest government initiative to encourage private pension provision. If you are an employer, no matter how few your staff, personal accounts are likely to affect you.
• Any employee aged between 22 and the state pension age with earnings of at least £5,035 a year (in 2006/07 terms) must be automatically enrolled in the personal account pension scheme if they are not already a member of a scheme that is at least as good in terms of benefits or total contributions.
• For each personal account member, the employer must pay contributions of at least 3% of all earnings - not just basic pay - between £5,035 and £33,540 ('band earnings' - again in 2006/07 terms).
• The employee must pay sufficient personal contributions to bring total contributions (including employee tax relief) up to 8% of band earnings. In practice, this is likely to mean that the employee pays 4%, the employer pays 3% and tax relief on the employee's contributions brings the total to 8%.
• Employees will have the right to opt out, but if they do so they will be automatically re-enrolled every three years or when they change job.
The target date for launching personal accounts is October 2012, although this is by no means fixed. In any event, contribution levels will be phased in over at least three years from launch.
Contracting out The Act provides for an end to opting out (technically 'contracting out') of the state second pension scheme (S2P) by way of personal pensions or money purchase occupational schemes. No date has yet been set, although the expectation is that it will be April 2012. If you are a member of a final salary (defined benefit) contracted out scheme, the change will not affect you.
Preserved pensions If you leave a final salary scheme after 5 April 2009, eg on changing job, the Act will reduce the statutory inflation protection given to part of your pension benefits. For all benefits accrued after that date, the statutory increase until retirement will be the lesser of inflation and 2.5% a year, compared with the present ceiling of 5%.
If you need help in planning for these changes, let us know. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on individual circumstances.