TPAS - The Pensions Advisory Service

Auto-Enrolment and Personal Accounts: Advice for Employers

Q & As

What are Personal Accounts?

In a move to encourage saving for retirement, the Government is introducing a new low-cost saving scheme – currently called Personal Accounts but this name may change. It is to be introduced from 2012 and employees who do not offer access to a suitable alternative pension arrangement will be able to use personal accounts for their employees.

Employees will be automatically enrolled in the scheme but will have the opportunity to say they do not want to join. They will also be able to come out again at a later date if they want to.

Contributions will be paid by employees and employers and invested in a range of funds. At retirement, the accumulated fund will be used to provide an income for the member’s lifetime.

Members of the scheme and their employers will be able to pay additional contributions above the specified levels. However, there will be an overall limit on the total amount that can be invested in the scheme each year. At present this limit has been set at £3,600 pa.

The scheme will be run by a board of trustees. The trustees will run the scheme independent of Government and the scheme will be regulated by The Pensions Regulator in common with all other occupational pension schemes.

What is auto-enrolment?

This is a process whereby employees are automatically entered into a pension scheme without any form of application on their part. Many employees fail to join valuable pension schemes where they first have to initiate an application process. Auto-enrolment is meant to overcome this obstacle.

When the pension reforms are introduced in 2012, all eligible employees will have to be auto-enrolled into a qualifying pension scheme. Employers will be able to choose which qualifying scheme to use, including the new personal accounts scheme. All qualifying schemes must meet minimum standards, either of the benefits it provides or the amount of contributions paid to it, and must also provide auto-enrolment for all eligible employees who have not already joined the arrangement and for all new employees when they become eligible.

Will I have to auto-enrol my employees into Personal Accounts in 2012?

You will have to auto-enrol into Personal Accounts any eligible employee. An eligible employee is one who is between 22 years of age and State Pension Age and earns more than a certain minimum (around £5,000pa) unless:

• he/she is a member of your final salary pension scheme that meets certain minimum standards, or
• he/she is a member of your money purchase pension scheme and there is a minimum level of employer contributions, or
• he/she is a member of your personal pension plan or stakeholder pension scheme and there is a minimum level of employer contributions.

If an eligible employee is not an existing member of one the schemes mentioned above, he/she must be either auto-enrolled in Personal Accounts or in your employer’s pension arrangement provided that arrangement meets certain minimum conditions as to the benefits it pays or the level of contributions paid to it.

At present, although employers can auto-enrol employees into an occupational pension scheme, they cannot auto-enrol employees into a WPP. However, from 2012, employers can choose to auto-enrol eligible employees into either an occupational pension scheme or a qualifying Workplace Personal Pension.

There is no requirement to auto-enrol in any pension arrangement an employee who does not meet the eligibility conditions.

I already have a final salary scheme for my employees. Will I still have to put them into Personal Accounts?

No, as long as the final salary scheme meets certain minimum standards as to the level of benefits it provides you will not have to do anything in respect of those employees who have already joined the scheme. If you introduce auto-enrolment into your scheme for all new employees and those existing employees who are not currently members of the scheme you will be exempt from having to use Personal Accounts.

You may have employees that are not eligible to join your final salary scheme. Any such employees must be enrolled into Personal Accounts if they are between 22 years of age and State Pension Age and earn more than around £5,000 per annum.

I already have a money purchase scheme for my employees. Will I still have to put them into Personal Accounts?

No, as long as the money purchase scheme meets the minimum contribution rate test and it operates auto-enrolment for eligible employees. If it does not meet this test, or does not operate auto-enrolment, you are not exempt from enrolling into Personal Accounts those employees who meet the eligibility conditions, i.e. are aged between 22 and State Pension Age and earn a minimum amount (around £5,000 pa).

You may have employees that are not eligible to join your money purchase scheme. Any of those employees (if they are not already in a final salary, stakeholder or GPP arrangements – see Q3) must be enrolled into Personal Accounts if they are between 22 years of age and State Pension Age and earn more than around £5,000 per annum.

I already have a stakeholder scheme for my employees. Will I still have to put them into Personal Accounts?

Provided your scheme meets certain minimum criteria with regard to the level of contributions, you will not have to do anything about those who have joined it.

From 2012, employers can choose to auto-enrol their employees into a qualifying stakeholder pension scheme.

I already have a Group Personal Pension Plan (GPP) for my employees. Will I still have to put them into Personal Accounts?

Provided your scheme meets certain minimum criteria with regard to the level of contributions, you will not have to do anything about those who have joined it.

From 2012, employers can choose to auto-enrol their employees into a qualifying GPP.

I already have a final salary scheme for my employees. Can I drop this in favour of Personal Accounts?

Yes. You may decide to close your final salary scheme at some time in the future. You should first check what contractual rights your employees have before withdrawing this scheme and there is a consultation process you must go through. If the final salary scheme continues as a ‘closed’ arrangement, you will still be responsible for the existing regulatory requirements, such as scheme funding.

From 2012, you will have to enrol the affected employees into Personal Accounts unless you replace it with another exempt arrangement.

If you withdraw this scheme before 2012, you may need to meet access requirements for stakeholder pension schemes. If you have five or more employees, you must offer access to a stakeholder pension to all your relevant employees.

I already have a money purchase scheme for my employees. Can I drop this in favour of Personal Accounts?

Yes. You may decide to close your money purchase scheme at some time in the future. You should first check what contractual rights your employees have before withdrawing this scheme and there will be a consultation process you must go through.

Unless you replace it with another exempt arrangement you will have to enrol your eligible employees into Personal Accounts.

If you withdraw this scheme before 2012, you may need to meet access requirements for stakeholder pension schemes. If you have five or more employees, you must offer access to a stakeholder pension to all your relevant employees.

I already have a stakeholder scheme for my employees. Can I drop this in favour of Personal Accounts?

Yes. You may decide to close your stakeholder scheme at some time in the future. You should first check what contractual rights your employees have before withdrawing this scheme and there will be a consultation process you must go through.

Unless you replace it with another exempt arrangement, you will have to enrol your eligible employees into Personal Accounts.

If you withdraw this scheme before 2012, you may need to meet access requirements for stakeholder pension schemes. If you have five or more employees, you must offer access to a stakeholder pension to all your relevant employees.

I already have a Group Personal Pension Plan (GPP) for my employees. Can I drop this in favour of Personal Accounts?

Yes. You may decide to close your GPP at some time in the future. You should first check what contractual rights your employees have before withdrawing this plan and there will be a consultation process you must go through.

Unless you replace it with another exempt arrangement, you will have to enrol the affected employees into Personal Accounts.

If you withdraw this scheme before 2012, you may need to meet access requirements for stakeholder pension schemes. If you have five or more employees, you must offer access to a stakeholder pension to all your relevant employees.

Where can I get more information about Personal Accounts?

You can call The Pensions Advisory Service (TPAS) on 0845 601 2923 or write to them at 11 Belgrave Road, London, SW1V 1RB or email them on enquiries@pensionsadvisoryservice.org.uk