View more on these topics

Govt sets £7,475 auto-enrolment limit and offers employers simplification

Adrian-Boulding.gif

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.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. Does anyone know….

    How will the enrolement be regulated? CPMA..Pensions Regulator…?

    Its just that i think we can all see some smaller employers who dont like the idea of coughing up for their employees pensions “opting out” themselves, and therefore the whole thing becomming a farce, as its often smaller companies who offer no penion arrangements to their staff and here that the gap exists.

    Or will every company, big or small in the country who is eligible be contacted and ‘forced’ to sign up.

    Anyone know the driver here to ensure compliance?

  2. To save on considerable administration, a more appropriate “waiting” period would be six months – this is often the probation period for new employees.

  3. ‘given only busineses with 120,000 employees+ will have to be in from day 1’…how many employers (bar the public esector) will this affect? Can’t imagine more than a handful, all of whom will probably have better schemes than this anyway.
    also, can’t see that taking £300 pa off is going to go down well with someone easrning 7475pa who needs to pay for food on the table now.

  4. I understand The Pensions Regulator will be responsible for ensuring compliance from Employers. They will be far more proactive then they were with the introduction of GSHP schemes.

  5. About 8 or 9 years ago did they not introduce stakeholder (that was nearly as bigger flop that the millenium stadium). More cost to small businesses that should help them grow.

    Going forward I guess I won’t be helping the dole queue reduce in length.

  6. DON’T ALLOW EMPLOYERS TO RUN PENSION SCHEMES!
    Afetr 26 years as an IFA that would be my advice. But employers should be required by law to fund an employee’s personal pension plan and emplyees should be required by law to have one and to fund it by a minimum %age level. This would also make it easier to migrate as an emplyee and the employer’s contribution could be linked to a form of profit sharing.

  7. I think that all firms irrespective of size should be included in the auto enrolement – isn’t it these firms that fail to provide the pension provision in the 1st place?

  8. Let me see now. Firstly, I recall the coalition government having announced its intention to raise the Personal Allowance to £10,000 p.a. So what’ll happen to people auto-enrolled because they earn slightly more than today’s Personal Allowance but, in a year or two, may find themselves earning rather less?

    Secondly, with an AMC of 2% to recover the millions blown thus far by PADA + Tata’s bit for the admin + a bit more for a still as yet to be named investment manager, NEST can hardly be argued to be good value by any measure, can it?

    I suspect the government’s hoping for private sector providers to step into the breach so it can then quietly junk the whole idea of NEST on the grounds that what the private sector has come up with is better ~ a triumph for private enterprise!! But the private sector providers aren’t going to be railroaded into another stakeholder fiasco. So what’s the point of all this?

    There are lots of bold noises being made about auto-enrolment and NEST but behind the scenes I think it’s a just mess.

    I’m all for encouraging people to save for their retirement. I just don’t think auto-enrolment is the way to go about it.

  9. What benefit will a 50+ gain from placing pennies into his pension. All he is going to end up with is a pokey pot of money that will not even pay for a holiday in Brighton. Please can the simpletons at the FSA/PIA/SIB/what they are called rethink about not only age limits but just whom is going to be accountable for the advice etc. As always a complete farse by the FSA.

  10. Gareth E K Smith 27th October 2010 at 2:19 pm

    Welcome to the world of part time work.

    This has the potential for creating more holes than a cheese grater.

    I have already spoken to one of my employers about this and he is looking at now only employing part time workers which benefits him and also the employee.

    Take for example an employee this year doing 40 hours on minimum wage of £5.93 per hour, he/she earns app £12334.40 gross. Out of this were NEST up and running he would pay £146.98 into his/her pension scheme. His tax and NI would be £1670.25. He she would also draw approx £404 in working tax credits. Thus his/her Net income £10,921.17.

    His employer however on top of employers NI of £846 approx would now have to pay £195.97 in NEST.

    Let’s just say that he has three employees working 40 hours each and he employ’s another employee but reduces all hours to 30 hours per week.

    Employee gross 30 hours @ £5.93 per hour £9250.08 app per annum. Employee NEST contribution £53.25 per annum. Employee tax and NI approx £732. But tax credits rise to £1700 a year. Net income for 30 hours a week work £10,164.

    His employer would have a reduced employers NI bill of £451.94 and a NEST payment of £71 a year app.

    This is one example i have discussed with one of my employer’s.

    Before anyone get’s on their high horse this employer is a manufacturer competing with the far east situated in a “deprived area” of the country and is only just staying in business.

  11. Gareth, I was going to say the new proposals are an improvement until i read your post and I see your point. An improvement, but still a massive dogs dinner.

  12. The biggest scandal of future generations. I had to laugh at some of the statements coming out of Parliament – almost the same statements as were used for Stakeholder Pensions. When will these professional political classes realise that it wont work as people simply cannot afford to save.

    Also what will happen in 10-15 years time and all of a sudden means testing is re-introduced meaning that low earners are worse off than if they had joined NEST in the first place.

    Lets face it someone earning £7,475 is hardly going to build up a significant pension pot over their working life.

  13. Oh Please! No more simplification – it will only end in more complication.

    The fact is simple – anyone earning less than £30k pa can’t afford to build up a respectable pension ‘pot’ and pay the mortgage. The FSA, most politicians and the higher eschelons of the civil service who put all these ideas forward, live on a different planet from ordinary working people.

    The government should be working towards providing a decent State pension paid for out of the billions it collects in taxes which, at the moment, are squandered on benefit cheats, overseas aid (which finishes up in the hands of war lords and corrupt politicians), nuclear submarines and aircraft carriers without any aircraft, an NHS with more administrators than the number of nurses, doctors, cleaners, porters, cooks and hospital beds added together, 600 surplus-to-requirements MPs……do I need to continue ?

    The government is proposing to increase the State pension from a diabolical £5k to a miserable £7k for those people who live past 68 (soon to be 70).

    Get rid of Trident and raise this proposed figure to £10kpa…..a much better use of OUR money.

  14. Crazy gang IFA member 31st October 2010 at 6:54 am

    Sounds good on the surface, but having read some of the comments on it’s actual implementation, the cost of compliance and the effect of applying it in a blanket way (regardless of age or ability) I have serious misgivings. Couldn’t Stakeholder pensions just have just been adapted to make employers and employee contributions compulsary, with some sort of sliding scale on age and income? I am also not quite sure what someone can expect in pension benefits from such a small contribution. It seems something and nothing to me.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com