Personal Accounts – The Road to 2012

The Pensions Act 2008 puts into law the reforms to the private pension system set out in the White Paper, "Personal Accounts: a new way to save” published in December 2006.

From 2012 it will be compulsory for all employers to contribute to a pension scheme.

All eligible workers, who are not already in a qualifying scheme, will be automatically enrolled into either their employers’ pension scheme or a new ’national’ pension scheme, currently known as ‘Personal Accounts’.  To encourage participation, employees’ pension contributions will be supplemented by contributions from their employers and also an element of tax relief.

It is planned that from 2012, employers will automatically enrol eligible workers between the ages of 22 and State Pension Age into a qualifying workplace pension scheme (which can include the new ‘personal accounts’ scheme).

All employees will be eligible for auto-enrolment (which means they HAVE to be auto-enrolled) unless:

 - they are already in a qualifying workplace pension scheme 
 - they are under the age of 22; or 
 - they earn less than £5,035 a year (in 2006/2007 tax year terms)

Employees can ‘opt-out’ but only once they have been auto-enrolled and the process is quite complex.  Any employee who opts out must be auto-enrolled again 3 years later.

Auto-enrolment is the responsibility of the employer and not the Government.  A Government body, with substantial powers, is being set up to ensure employer compliance.  Non-compliance could lead to a fine of up to £50,000 and a possible 2 years’ imprisonment.

Employers will be required to provide eligible employees with sufficient information about the pension scheme at the same time as auto enrolling them into the scheme.  However, employers must not give any advice to employees.

It will be the employer’s responsibility to continually check which employees are eligible on an almost daily basis.