Pearson Hinchliffe Solicitors - Professional Understanding - Advising - Supporting - Delivering

E-mail: enquiries@pearson-hinchliffe.co.uk | Telephone: 0161 785 3500

Corporate Pensions: The Personal Account

In the UK, we are now living longer and having fewer children. As a result, workplace pension schemes have come under increasing pressure as they have to cover the income of retirees for longer with less investment. At the same time, people are not saving enough for their retirement off their own back. The government is therefore becoming concerned about its ability to cope with the future demands for state payouts.

Consequently, the Government has decided it is time to try and persuade more individuals to start saving towards a private pension. Their latest measure is therefore the ‘Personal Account’ and is set for implementation in 2012.

The Personal Account is being designed to encourage both a greater level of saving for old age and open up access to saving for individuals who do not currently have a decent workplace pension scheme. Therefore, from 2012, all eligible employees will be automatically enrolled into a Personal Account unless a suitable workplace scheme exists to take its place.

For employers, this creates a lot of issues. First, and perhaps most importantly, the Personal Account or workplace alternative must be part funded by the employer – with a contribution of 3% of eligible earnings. This will be added to a 4% contribution from the employee and another 1% from the Government (via tax relief), making a total of 8%*.

Personal accounts are aimed primarily at low-to-moderate income earners aged from just 22 right up to state-pensionable age. These are earners who in the past have either not had access to independent savings or have opted not to take part. Consequently, the cost of having to part fund such workers is likely to increase costs for virtually all businesses.

There is also the question of whether to continue with – or set up – a workplace pension scheme instead. For those employers whose workforce is made up of the higher paid, or who consider the incentive of a more flexible arrangement key to their benefits package, the rigidity of Personal Accounts may not provide the incentive that they are looking for. Some may therefore consider that either opening, extending or simply increasing the funding for an existing workplace scheme is something they need to sort out in advance. There may even be contractual issues to sort out with existing staff.

Whatever your current situation, it is a good idea to start considering how you can meet the needs of your own workforce. Whether you employ 2, 200 or even 2,000 employees, the earlier you beginning to consider your options, the better prepared for the changes your business will be.

* Eligible earnings are those between £5,035 and £33,540, indexed with average earnings from 2007

Pearson Hinchliffe Commercial Law | Hollinwood Business Centre, Albert Street, Hollinwood, Gtr Manchester, OL8 3QL
Telephone: +44 (0)161 785 3500, Fax: +44 (0)161 624 2589, Email: enquiries@pearson-hinchliffe.co.uk