Pensions Act 2008
The Pensions Act 2008
The Pensions Act 2008 puts into law the reforms to the private pension system set out in the White Paper, Personal Accounts: a new way to save published in December 2006.
These reforms build upon the Pensions Act 2007 and are aimed at enabling and encouraging more people to build up a private pension income to supplement the money received from their basic State Pension.
The Act only applies to Great Britain but it is intended that Northern Ireland, which has its own pensions legislation, will make corresponding provision for its customers in due course. An overview of the Pensions Act 2008 is set out below.
The Pensions Act 2008 – an overview
The Pensions Act contains a number of measures aimed at encouraging greater private pension saving. From 2012 it is planned that all eligible workers, who are not already in a good quality workplace scheme, will be automatically enrolled into either their employers’ pension scheme or a new savings vehicle, which is currently known as a personal account scheme.
To encourage participation, employees’ pension contributions will be supplemented by contributions from employers and tax relief.
Automatic enrolment
It is planned that from 2012, employers will automatically enrol eligible workers’ who are not in a qualifying scheme into an automatic enrolment scheme (which can include the new ‘personal accounts’ scheme). Automatic enrolment means instead of choosing whether to join a workplace pension scheme provided by their employer, all eligible workers will have to actively decide not to be in a scheme, if for any reason they feel this is not a suitable form of personal saving for their situation
Minimum employer contribution
For the first time all employers will be required to contribute a minimum of 3% (on a band of earnings) to an eligible employee’s workplace pension scheme. This will supplement the 4% contribution from the employee and around 1% from the Government in the form of tax relief.
The personal accounts scheme
From 2012 it is planned to introduce a new low cost saving vehicle (the personal accounts scheme) aimed at employees who don’t have access to a good quality work based pension scheme - in the main, median to low earners. Key features of the scheme:
- Occupational pension scheme – run in the best interests of its members
- Low charges
- Simplicity
There will be contribution limit of £3,600 per year (based on 2005 earning levels) and a general ban on transfers in and out the scheme, to focus the scheme on the target market.
The Act also includes measures to:
- Enforce employer duties through a compliance regime for which the Pensions Regulator will have overall responsibility;
- Extend the remit of the delivery authority;
The Government plans to introduce these reforms from 2012, but information will be made available in advance of this date to ensure that those affected are prepared for the changes before they take effect.
Simplification measures
This act includes a number of measures designed to simplify the existing system - for both state and private pensions. These include consolidation of additional State Pension and removal of rules relating to contracted- out rights.
Other measures
The Act makes a number of changes relating to the operation of the Pensions Protection Fund (PPF) including enabling PPF compensation to be shared on divorce as well as enabling individuals in the PPF with terminal illness to commute their entitlement into a lump sum.
The Act includes measures that will enable changes to be made to extend the qualifying conditions for the Financial Assistance scheme (FAS).
The Act allows certain people to buy up to an additional six years of voluntary Class 3 National Insurance contributions (NICs). This is over and above those permitted under the current time limits, in order to enhance their basic State Pension entitlement. The new rules come into effect from 6 April 2009. Find out more in our State Pension section
The Act also allows data to be shared between the DWP and energy suppliers to enable them to better target the assistance they provide to individuals receiving Pension Credit.
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for further explanation of the terms used on this page