The Department for Work and Pensions is asking employers for their views on possible changes to pensions, auto-enrolment and personal accounts. Alex Rush analyses the consultation paper and the likely outcomes.
Much has been written about automatic enrolment and the format of the pensions reforms that are due to come into effect from October 2012. Some of the proposed reforms are likely to be modified as a result of the latest Department for Work and Pensions (DWP) consultation paper released on 24 September 2009.
Here we examine some key points of the consultation, and identify some of the possible benefits and risks to employers of participating in the centralised money purchase pension scheme, known as personal accounts, that is being set up by the government.
The DWP consultation has suggested some significant modifications to the way in which the pension reforms, notably automatic enrolment and compulsory contributions, will be implemented. Some of the key modifications are:
- From 1 October 2012 there will be a staging process, which means that automatic enrolment will be phased in gradually in stages over three years.
- Each employer will have a staging date, with large employers being phased in to automatic enrolment at earlier dates, followed by mid-sized, small and micro employers later.
- The aim of the reforms is that employers will be required to contribute at least 3% of each employee's qualifying earnings.
- These contribution requirements will also be phased in gradually. On reaching their staging date, employers, other than employers providing a defined benefit (DB) scheme, will be required to contribute 1% until 1 October 2015 at which point the minimum contribution will be 2% rising to 3% from 1 October 2016 onwards.
For employers that run DB schemes (including hybrid schemes), automatic enrolment will not bite until October 2015, provided that their scheme is open to all their employees.
As this is a consultation, these suggested changes are not set in stone. However it is clear that the DWP is envisaging a slower introduction of the reforms, fearing that a 'big bang' introduction on day one could result in chaos.
For some employers, the requirement to automatically enrol th