Qualifying Workplace Pension Schemes – The Options
Employers will have three options in terms of a qualifying pension scheme:
The scheme will be run by a Government appointed body, yet to be decided, but in the process of being set up by PADA (Personal Accounts Delivery Authority).
The scheme will be an Occupational Pension Scheme with low charges (level yet to be confirmed). The minimum contribution level is 8% of band earnings.
Contributions will be limited to £3,600 per annum (based on 2005 earnings levels) and transfers in and out of Personal Accounts will not be permitted. This could be a problem to higher earners or people with other paid up pensions.
Automatic enrolment applies to all employees over 22 with earning over £5,035 per annum.
It is not yet clear what types of funds will be available for investment and what choice employees will have. However; they will be very basic and a very restricted number.
At retirement only a lifetime annuity with an Open Market Option is likely to be available.
Due to the low charging structure it is not clear how employees will be able to receive advice in relation to joining Personal Accounts.
The minimum contribution will again be 8% of band earnings but there is nothing to stop an employer funding this in full. The maximum an employee can be asked to pay is 4% of net banded earnings.
The scheme must be available to all employees aged between 22 and State Pension Age earning above £5,035.
Automatic enrolment applies on the day an employee becomes eligible and the cost of advice can be factored into the scheme.
Investment funds and options can be tailored to the scheme and transfers in and out will be permitted.
Contributions will only be limited by the Annual Allowance or Lifetime Allowance.
At retirement all the flexible retirement options will be available.
The minimum contributions will be set at 11% of banded earnings and at least 6% must come from the employer. In reality the minimum contribution will be 9.35% with the employer paying at least 5.1% of full earnings not banded earnings for those earning £33,540.
All Defined Benefit schemes that meet the Reference Scheme Test will be classed as a Quality Qualifying Workplace Pension Scheme.
Investment funds and options can be tailored to the scheme and transfers in and out will be permitted. The cost of advice can again be factored into the scheme.
Contributions will only be limited by the Annual Allowance or Lifetime Allowance.
At retirement all the flexible retirement options will be available.
The Personal Accounts Scheme
This will be the default scheme should an employer not have a qualifying workplace scheme.The scheme will be run by a Government appointed body, yet to be decided, but in the process of being set up by PADA (Personal Accounts Delivery Authority).
The scheme will be an Occupational Pension Scheme with low charges (level yet to be confirmed). The minimum contribution level is 8% of band earnings.
Contributions will be limited to £3,600 per annum (based on 2005 earnings levels) and transfers in and out of Personal Accounts will not be permitted. This could be a problem to higher earners or people with other paid up pensions.
Automatic enrolment applies to all employees over 22 with earning over £5,035 per annum.
It is not yet clear what types of funds will be available for investment and what choice employees will have. However; they will be very basic and a very restricted number.
At retirement only a lifetime annuity with an Open Market Option is likely to be available.
Due to the low charging structure it is not clear how employees will be able to receive advice in relation to joining Personal Accounts.
Qualifying Workplace Pension Scheme
Employers will be able to self-certify their own scheme as a qualifying scheme if it can pass a quality test. The scheme can be an Occupational or Personal Pension based scheme.The minimum contribution will again be 8% of band earnings but there is nothing to stop an employer funding this in full. The maximum an employee can be asked to pay is 4% of net banded earnings.
The scheme must be available to all employees aged between 22 and State Pension Age earning above £5,035.
Automatic enrolment applies on the day an employee becomes eligible and the cost of advice can be factored into the scheme.
Investment funds and options can be tailored to the scheme and transfers in and out will be permitted.
Contributions will only be limited by the Annual Allowance or Lifetime Allowance.
At retirement all the flexible retirement options will be available.
Quality Qualifying Workplace Pension Scheme
A Quality Qualifying Workplace Pension Scheme will enable an employer to postpone the auto enrolment process to 90 days.The minimum contributions will be set at 11% of banded earnings and at least 6% must come from the employer. In reality the minimum contribution will be 9.35% with the employer paying at least 5.1% of full earnings not banded earnings for those earning £33,540.
All Defined Benefit schemes that meet the Reference Scheme Test will be classed as a Quality Qualifying Workplace Pension Scheme.
Investment funds and options can be tailored to the scheme and transfers in and out will be permitted. The cost of advice can again be factored into the scheme.
Contributions will only be limited by the Annual Allowance or Lifetime Allowance.
At retirement all the flexible retirement options will be available.
MGP’s View
No employers, from the smallest business to the very largest can afford to ignore these changes unless they are prepared to pay a fine of up to £50,000 and still have to subsequently introduce a scheme!
The Government has taken on board the lessons of Stakeholder where employers set up arrangements that were never promoted and people did not join. Employers must not believe that Personal Accounts will similarly suffer ‘death by apathy’.
As it will be law to have a pension scheme why not have one that is branded with your company name and one where employees are able to receive advice.
If you have a pension scheme in place you should take steps to ensure that your scheme can be classed as a Qualifying Workplace Pension Scheme.
If possible you should try and have a Quality Qualifying Scheme as this will give you 90 days to auto enrol employees, relieving some of the administrative burden that otherwise exists.
MGP will be able to assist you in the design of your scheme, manage the scheme for you and provide advice on any Workplace Pension Schemes.
Further details of Personal Accounts can be found under 'Newsletters'.
