Following on from the Pension Commission's report the government passed the Pensions Act 2008 implementing a number of the Commission's recommendations. The Commission's report concluded that many people were not saving for retirement, and that those who were had pension funds that fell below the level required at retirement. 

To combat this and ease the State burden the government have introduced automatic enrolment of employees into a pension scheme to which employers must contribute. From 2012 employers will need to enrol all eligible employees either into their existing pension schemes or a new personal account.

The target contribution to a scheme will be 8% of basic band earnings and will comprise a 3% contribution from the employer, a 4% contribution from the employee and 1% of tax relief.

To be eligible an employee must be between 22 and state pension age and be earning more than £5,035 (using 2006/7 figures), the criteria ensures that all full time employees earning minimum wage will be eligible. Employees above or below the age requirements are able to opt in to the scheme.

For many employers this is going to be difficult, especially for those already struggling as a result of the recession. Employers should start preparing for the introduction of the new scheme as soon as possible to ease the financial burden and to not be caught out at the last minute.

Disclaimer: The information and opinions expressed in all Lee & Priestley LLP articles contained in our briefings and on our website - http://www.leepriestley.com are not necessarily comprehensive and should not be relied upon without taking in-depth professional advice.

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