Start Planning Now!

The Personal Accounts scheme will be a trust-based pension scheme into which all employers and employees (unless exempt) must contribute.  Personal Accounts are to be introduced in October 2012. The Maitland Walker Employment Team is advising clients to start thinking about this now!

The Personal Accounts Delivery Authority (PADA) has been appointed to oversee the setting up and ongoing running of the scheme.

Personal Accounts will apply to workers who ordinarily work in Great Britain, are aged between 16 and 75 and are in receipt of relevant earnings from their employer.  For the purpose of the scheme, these workers will be referred to as jobholders. All jobholders aged between 22 and the State Retirement Age must be automatically enrolled into the scheme (or a qualifying alternative arrangement) by the employer on the first day of their employment.  If a jobholder chooses to opt-out, the employer must automatically re-enrol the jobholder every 3 years at the ‘employer anniversary’ date.

Contributions to the scheme are based on qualifying earnings over a pre determined pay reference period (such as a tax year).  The qualifying earnings are total earnings (bonuses, overtime etc. included) between £5,035 and £33,540.  This level of qualifying earnings will be reviewed each tax year.

It is intended that jobholders will contribute 4% (plus 1% tax relief) and employers will contribute 3% of qualifying earnings.  It is proposed that the contributions will be phased in as detailed below:

*The Government have proposed staged joining with the largest employers participating from year 1 through to the smallest employers in year 3. 

Employer responsibilities

Employers will have to provide information to jobholders about Personal Accounts, automatically enrol jobholders into the scheme and deal with opt-outs.  Contributions must be deducted by the employer and paid to the scheme administrators (still to be appointed by PADA).

The Pensions Regulator will ensure that employers comply with their duties under the scheme.  Failure to do so could lead to a fixed penalty notice of £50,000 with additional penalties of £10,000 for each day an employer fails to take the necessary remedial action.

It will be a criminal offence for an employer to wilfully fail to comply with their duties.  Those responsible will be liable to a prison sentence of up to 2 years, a fine or both.

Collecting employee contributions

Some employers will be required to start collecting employee contributions before auto enrolment happens.  Contributions must be deducted on the first payday after the start of employment even if the member is not yet an active scheme member.

Whilst auto enrolment can take up to 14 days, it will be backdated to the start of employment.

Personal accounts exemption

Employers with pension schemes which satisfy certain rules will be exempt from offering Personal Accounts.  These alternative pension schemes will have to provide automatic enrolment and offer the same opt-in and opt-out arrangements as Personal Accounts.

Occupational money purchase arrangements or personal pension schemes require contributions of at least 8% of qualifying earnings, 3% of which must be paid by the employer, in order to qualify for exemption.

Processing opt-outs

Employees cannot choose to opt-out of the pension until they have received the required information and been automatically enrolled.  They then have 30 days to opt out.

Employers will be forbidden from providing opt out forms to their employees.  These will have to be obtained from the PADA/scheme administrator.

If a paper refund form is completed, it must be returned to the employer who then sends it to the scheme.  The employer must pay the money back to the jobholder and reclaim it from the fund, however, the refund process to the employer will take up to 21 days.  This could be repeated every three years!

If a scheme has a combined contribution of 11% or greater auto-enrolment can be deferred to up to 90 days but it is our current understanding that the ‘missed’ payments must be made up.

Salary exchange

Utilising salary exchange may help employers meet the exemption criteria while mitigating any increase in cost.  By using the rebated NIC saving offered by salary exchange, employers may be better placed to meet the required level of contribution.

To remove your name from our mailing list, or to contact us with questions or comments please email Employment Partner, Nick Rowe:- nick.rowe@maitlandwalker.com or call us on 01242 285855.

As this information has been prepared by Maitland Walker Solicitors as a general guide, we recommend you seek specific professional advice before acting on any information contained within it.  No liability can be accepted by Maitland Walker for any action taken or not taken as a result of this information. Maitland Walker is regulated by the Solicitors Regulation Authority.