Background information

The reform is aiming to encourage greater private pension saving, particularly amongst those on low or moderate incomes.

The Pensions Act 2008 (the Act) takes these reforms forward. It includes a duty on employers to automatically enrol their eligible jobholders into a workplace pension scheme that meets certain requirements, and provide a minimum employer contribution.

Automatic enrolment is designed to overcome the fact that many workers miss out on valuable pension benefits because they don't apply to join their employer's scheme, or their employer doesn't offer them access to a workplace scheme.

How individual workers will be affected

Individual workers, if they are eligible jobholders, will be automatically enrolled into their employer's pension scheme. This means that the employer must make all the arrangements and the individual need do nothing to be put into the scheme.

The minimum contribution level is equivalent to 8% of qualifying earnings, of which the employer must pay at least 3%, although they could choose to pay more. The individual must make up the difference, if any, and will receive tax relief on their contributions. So if an employer pays 3%, the individual must pay 4% and will receive 1% tax relief, based on a basic rate of tax of 20%.

For defined contribution (DC) schemes, the contribution levels will be phased-in during implementation, increasing gradually to help people adjust.

The individual may choose to opt out of pension saving if they wish.

How employers will be affected

An employer will need to ensure that they provide a qualifying scheme and automatically enrol all their eligible jobholders into the scheme when the duty starts.

An employer will be required to pay a minimum contribution equivalent to 3% of a jobholder's qualifying earnings into the scheme. The contribution level will be phased in during implementation, increasing gradually to help employers adjust to costs.

Professional advisers

Professional advisers will have a key communications role in informing their employer clients about their duties under the new regime. Employers will probably go to their advisers first, to find out what they need to do to be compliant.

The Pensions Regulator will support advisers in helping to communicate the changes.

Policy review after implementation

The DWP will monitor the effectiveness of the regime from 2012, so that they can identify whether there are any areas for improvement.

The regulator will be responsible for ensuring employers are aware of their duties and how to comply with them. We will use a programme of targeted communications and updated information on our website to help employers understand what they need to do and by when.

Our communications are designed for both employers and professional advisers – such as accountants, advisers and trade associations – to whom employers are likely to turn for information and advice. Note that as a regulatory body, we cannot offer an advisory service, but we will make guidance and information available to individual employers from our website and customer contact centre.

Our communications will provide the right level of information for employers of different sizes and with different information requirements. We will focus our activities on educating and enabling employers to comply with the requirements.

Communicating with employees

The DWP is responsible for keeping employees informed about how pensions reforms will affect them. They have produced some materials to help employers communicate the changes to their workforce: Automatic enrolment employer communication materials

The Pensions Regulator

The Pensions Regulator is the UK regulator of work-based pensions. The Pensions Act 2004 gives us 3 main statutory objectives:

• to protect the benefits of members of work-based pension schemes
• to promote good administration of work-based pension schemes and
• to reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund.

In order to meet these objectives, we concentrate our resources on schemes where we identify the greatest risk to the security of members' benefits.

The Pensions Act 2008 gives us a new objective to maximise compliance with the new employer duties, as well as two new safeguards to protect employees who want to save in a pension. We are currently developing our approach to making sure employers comply with their new duties.

NEST

NEST is the National Employment Savings Trust. It is a qualifying scheme under the government's reforms and is intended to complement existing workplace pension provision. It has been set up to meet the needs of people new to pension saving and is open to all employers and self employed individuals.

NEST’s website provides more information.

The Department for Work and Pensions

The DWP is the government department responsible for the development of UK pension policy and the law governing UK pension schemes.

The department sponsors a wide range of public bodies to achieve its objectives including The Pensions Regulator.

The Financial Services Authority

The Financial Services Authority (FSA) is an independent non-governmental organisation responsible for regulating financial services. This includes the regulation of the sale and marketing of personal and stakeholder pensions to individuals.

The FSA also oversees the financial viability of organisations that manage pension investments, and can take action to make sure that the individuals who run financial organisations are fit and proper for the task.