Final Salary Schemes (existing):
In order to qualify an existing final salary scheme will need to have a contracting out certificate in force as this is taken in evidence that the scheme already meets the ‘reference scheme test’ standard. This test requires for schemes to commence a pension at age 65, payable for life and must be:
a) 1/120th of average qualifying earnings in the last 3 tax years, preceding the end of pensionable service multiplied by
b) The number of years of pensionable service up to a maximum of 40.
When do the changes start?
They have already commenced, arriving in October 2012. The plan is to stage in automatic enrolment over a period of time, starting with large employers, medium and then small. To help employers adjust gradually, the plan is to phase in the employer contribution levels – starting at 1% and then moving to 2% and finally 3%. The jobholders’ contributions are also phased in over the same period.
The Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) is working to ensure that information will be available to help prepare employers and individuals for the changes. TPR will be writing individually to all employers at around 12 months and again at 3 months in advance of their automatic enrolment start date, to inform them when they need to take action and what they need to do to comply.
What should I be doing now?
If you are an Employer, you should ensure you understand the basic information on these changes, your staging date and which Employees will be affected. A review of existing arrangements should also be undertaken sooner rather than later. A review is also important as The Pensions Regulator, who will oversee the implementation process, does carry the power to levy fines of up to £400 or a fixed amount then daily fines of up to £10,000 on employers who do not take action.