Pensions Act 2011Friday, November 11th, 2011
The recently-enacted Pensions Bill gave us the Pensions Act 2011. Pensions will, undoubtedly, give us increased administration in the very near future, however, for payroll purposes, what does the Act give us that we did not already know? The key issues of the five main Parts of the Act are discussed below:
Part 1 – State Pension
Essentially, this part of the Act just amends the timetable for accelerating the State Pension Age that was detailed in the Pensions Act of 1995 and 2007. However, we already knew that the State Pension Age for women will be 65 from 2018 (rather than 2020) and equalised at 66 for both men and women from September / October 2020 (rather than 2026 in the 1995 Act, 2024 in the 2007 Act and April 2020 in the original Pensions Bill 2011!).
The Pensions Act 2011 simply makes this information part of the legislative framework.
Part 2 – Auto-Enrolment
The Pensions Act 2008 set out the concept of auto-enrolment, which begins in 2012 – i.e. that an employer will be compelled, by law, to automatically enrol certain employees / workers into a pension scheme and make minimum contributions. The Pensions Act 2011 just amends some details following an independent review in 2010, which the Government accepted and placed into legislation via the new Act. The main details are:
- The definition of an ‘earnings trigger’, set initially at £7,475.00. Where relevant earnings are above this, the employer will have to auto-enrol or re-enrol
- There is now some flexibility for employers on the timing of auto-re-enrolment
- Employers can operate a waiting period of up to three months; and
- Changes to the self-certification arrangements where an employer provides a quality alternative scheme
Part 3 – Occupational Pension Schemes
In a section entitled ‘Indexation and Revaluation’, the Act moves to allow private sector occupational schemes to increase and revalue according to the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). We believe that this outside the remit of most payroll professionals, however, it is worth mentioning.
Part 4 – Money Purchase Benefits
Another issue that is, probably, more relevant to our pension professional colleagues – the Act redefines and restricts money purchase benefits to ensure that such a scheme cannot guarantee pensions which may be greater than the invested funds would allow.
Part 5 – Judicial Pensions
This Part of the Act will require personal pension contributions to be taken from members of the judicial system to help fund the cost of providing pension benefits under Judicial Pension Schemes.
The Pensions Act 2011 is available below, together with a link to the usual Explanatory Notes, which provide a much easier way of digesting the information!