The introduction of Personal Savings Accounts in the recently published pensions white paper means that, from 2012, employers will, for the first time, have a legal obligation to contribute to their employees' pensions. Although many employers currently contribute to pension schemes, many do not and so some employers will face an increase in cost.
Although the details are still to be finalised the basic principles are that:
- All employers will have to offer automatic enrolment into a personal pension savings account to their employees (unless they have at least as generous an occupational pension scheme which already enrols employees automatically);
- Employers will have to make a compulsory contribution of 3% of salary to the scheme, with employees paying 4% and the government 1%; There will be an annual contribution limit of £3,600 (based on 2005 earnings terms) which will be up rated by earnings year on year;
- Accounts will be run as a single, large, multi-employer occupational pension scheme managed by a Board of trustees;
- The money will be invested on behalf of employees in a variety of savings vehicles, such as investments in stocks, bonds, and property; and
- The employer contribution will be phased in over three years. The government will consider a longer phasing-in period for smaller businesses.
Personal Savings Accounts have been broadly welcomed by both the TUC and CBI as a boost to retirement savings, particularly for low earners.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 20/06/2007.
