Employees earning more than the personal income tax allowance of £7,475 will be automatically enrolled into a pension scheme from 2012, the Department for Work and Pensions has confirmed.
The threshold is more than £2,000 higher than Labour’s proposed threshold of £5,035 a year. An optional waiting period of three months has also been introduced, during which employees can voluntarily opt-in.
Self-certification for employers operating money-purchase schemes has been simplified, alongside further deregulatory measures designed to reduce the burden on employers. The National Employment Savings Trust has been retained.
Speaking at a press briefing this morning, pensions minister Steve Webb confirmed that the minimum contribution rates would remain the same. The previous Government proposed 3 per cent from the employer, 4 per cent from the employee and 1 per cent tax relief.
Webb said he would not be drawn on any issues relating to the basic state pension reforms before the Government green paper is published later this year.
Legal & General pensions strategy director Adrian Boulding (pictured), who was part of the independent review team, says: “We are knocking the rough edges off the old proposals, so it is going to be easier for employers to operate, and therefore it will be easier for IFAs to work with those employers.”
The settlement will alleviate the concerns expressed by business lobbying organisations, most notably the CBI, about the sustainability of the previous administration’s plans.
Auto-enrolment will come into force on 1 October 2012, with employers phased in gradually over the following four years depending on size. Only businesses with 120,000 or more employees will have to comply with the reforms at the start date.