Pensions Update

Automatic pension enrolment delayed for small businesses

The Government has announced that small businesses will be given more than an extra year to comply with the requirements of the new automatic pension enrolment system.

Auto-enrolment is being phased in from October 2012, on a staged basis, beginning with larger employers. Following the announcement, the original April 2014 starting deadline for employers with less than 50 workers has been deferred until the start of the next Parliament.

Under the system, employers will have to enrol automatically all eligible workers into any qualifying pension scheme. This could be an existing company scheme (if it meets, or can be changed to meet, the necessary criteria) or NESTs (National Employment

Savings Trusts), a simple low-cost pension scheme being introduced by the government.

All businesses will eventually need to contribute at least 3% on a band of qualifying pensionable earnings for eligible jobholders. However, to help employers adjust, compulsory contributions will be phased in.

Employees will also contribute to their pension scheme – this will start at 1% of their salary, before later rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate.

Changes to the state pension age

The Chancellor has revealed that the rise in the state pension age to 67 will now come into effect between April 2026 and April 2028, saving an estimated £60bn between 2026/27 and 2035/36.

Meanwhile, the Government recently announced its intention to delay its plans to increase the state pension age to 66, following concerns that many thousands of women will have to wait longer to collect their pensions.

Under the plans, the pension age for women was set to rise from 60 to 65 by 2018, followed by a second increase in the pension age to 66, in April 2020. However, the second rise in the pension age will now take place in October 2020, benefiting around 245,000 women.