Legislation introduced in the Act includes:
|Abolition of safeguarded rights||Safeguarded rights are created when a couple divorce and the ex-spouse is awarded a pension credit that contains contracted-out money. Currently safeguarded rights cannot be taken before age 60 or used to provide a pension commencement lump sum. This change means that these restrictions will no longer apply.|
|Revaluation of accrued benefits for deferred members under a final salary scheme||Currently benefits (in excess of any GMP) accrued in respect of all past service must be revalued over the period from date of leaving until normal retirement date in line with RPI, up to a maximum of 5% p.a. compound. This will reduce to RPI, up to a maximum of 2.5% p.a. compound. This will reduce costs for employers running final salary schemes, but in all likelihood will reduce benefits for members of these schemes. This change will not be retrospective.|
|Pension protection fund (PPF) and pension sharing||It will be possible for pension compensation under the PPF to be subject to a pension sharing order. This is not currently allowed. This brings the PPF in line with other registered pension schemes.|
As expected the Act also includes more details on Personal Accounts:
The Act introduces two key requirements for employers:
Further details are below:
Employers must automatically enrol jobholders aged between 22 and the state pension age. A jobholder is someone who works in the UK aged between 16 and 75 with qualifying earnings.
|Qualifying earnings||The lower limit is £5,035 and the upper limit is £33,540 in 2006/07 earnings terms. This will be reviewed annually. Qualifying earnings are to include salary, wages, commission, bonuses, overtime and certain statutory benefits.|
|Automatic enrolment schemes||These schemes must be qualifying occupational pension schemes that allow automatic enrolment to take place.|
|Qualifying scheme and quality requirement||
Qualifying schemes are schemes that meet minimum standards and quality requirements. A qualifying scheme can be either an occupational pension scheme or a personal pension scheme.
UK occupational money purchase - rules must require an employer contribution of at least 3% of qualifying earnings and total contributions paid by the employer and jobholder of at least 8%.
UK defined benefit scheme (contracted-out) - the scheme must have passed the scheme reference test.
UK defined benefit scheme (contracted-in) - the scheme must provide a pension rate of at least 1/120th of the average qualifying earnings in the last 3 tax years before leaving pensionable service for each year of scheme membership (subject to a maximum of 40 years).
UK personal pension - the employer must contribute at least 3% of qualifying earnings and the jobholder must be required to make up any shortfall in contributions up to a total of 8%. There must be agreements between the scheme, the employer and the jobholder confirming the contributions required. The employer must agree to deduct contributions from earnings and pass on to the scheme.
It is worth noting that most private pension schemes use basic salary for the calculation of contributions and/or benefits. There will undoubtedly be practical issues for employers/pension providers who are trying to ensure that their schemes meet the defined minimum criteria of a qualifying scheme.
|Deduction of contributions||Employers who automatically enrol, re-enrol or arrange opt in for a jobholder into a scheme, are permitted to deduct the contributions from the jobholder 's pay and pass on to the scheme.|
|Right to opt out||A jobholder who has been automatically enrolled may opt out by providing a signed notice. Once a jobholder has opted out they will be treated as if they had never been a member of that scheme. Note that jobholders will automatically be re-enrolled after 3 years and may need to opt out again.|
|Right to opt in||Jobholders who are between 16 and 22 can ask to opt into the automatic enrolment scheme.|
|Penalties||Employers who do not comply with the new requirements can be fined up to £50,000, be subject to a fine that increases daily and could face possible imprisonment.|
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.
The information provided is based on our current understanding of the Pensions Act 2008 and may be subject to alteration as a result of changes in legislation or practice.
Published 12 December 2007
Updated 03 November 2011