10 Montpellier Arcade Cheltenham GL50 1SU
Tel: 01242 269656
Email: info@cheltenhamifa.co.uk

The recently passed Pensions Act 2008 is 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 and the reforms will be introduced gradually to make saving for retirement the norm. This landmark piece of legislation represents a key element of Lord Turner’s Pension Commission’s recommendations to help more people save for retirement.

From 2012 eligible workers (including temporary staff) between the ages of 22 and State Pension Age will either be automatically enrolled into their employer’s existing workplace pension scheme or entered into a new Personal Accounts scheme, ensuring those who in the past have not had the opportunity build up any savings for retirement can now do so.

Key features of the Personal Accounts scheme:

Being created to provide a low-cost, independent, workplace pension scheme that any employer can use
Will be run as a generic occupational pension fund for the benefit of members
Aims to provide access to workplace pension saving to employees who don’t have a good quality work based pension scheme – typically those on low to middle incomes
Minimum and maximum contribution levels
Total contribution will add up to about 8% of salary annually
Employers will be required to contribute a minimum of 3% to the new Personal Account or their existing occupational scheme
Employees - 4% contribution up to a limit of £3,600 per year (based on 2005 earning levels)
Government around 1% in the form of tax relief
A general ban on transfers in and out of the scheme
Low charges
Simplicity - including consolidation of additional State Pension and removal of rules relating to contracted-out rights

The workplace pension reforms mean that all employers must offer and choose to use the personal accounts scheme or another qualifying workplace pension for their workers - and that all eligible workers must be automatically enrolled into this chosen scheme.

Auto-enrolment is designed to make it easy for individuals to participate in pension saving, helping to overcome the inertia which prevents many people from saving currently. However, individuals will be able to opt out – in which case no contributions need be made by the employer, although they will be re-enrolled every three years as a matter of course.

If employees choose to opt out they can put their money into a private pension from a third-party provider. If you are interested in this option please contact us for independent financial advice.

Effects of the Act?

Some commentators feel this new legislation could spell the end for generous employer contributions towards retirement
considered more likely where employers already pay more than 3% in pension contributions and/or the company scheme is in high deficit
some schemes could be altered to come in line with the new Personal Accounts in which contributions are only made on income earned above £5,035 and below a £33,540
Seen by many firms as another tax on employment – particularly for smaller companies

Please note that whilst every effort is made to ensure that the information contained within this explanation is correct, these notes "Pensions Act 2008 - What's new?" are by necessity brief and of a generalised nature. We would provide specific personalised advice prior to finalising any arrangement.

For more information on your Personal Pensions, please contact Cheltenham Independent Financial Advisers Limited on 01242 269656 or email us at info@cheltenhamifa.co.uk. One of our advisers will be happy to assist you.