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The Pensions Bill, introduced on 6 December 2007, contains the government’s latest measures to help reduce the pensions crisis and encourage people to save towards their retirement.

By 2012 it is proposed that employers must automatically enrol all employees over the age of 22, who earn more than £5,000 per year, in a qualifying workplace pension scheme or a new trust-based centrally operated personal accounts scheme. Existing statutory requirements to designate a stakeholder pension scheme will be revoked.

Employers will also be obliged to make a contribution of 3% of the employee’s salary, up to a salary of £33,540 and, if the employer’s contribution is less than 8% of that salary, the employee will be obliged to make up the difference. The associated administrative costs falling on employers will depend on whether they subscribe to the personal accounts scheme or operate their own qualifying scheme. The initial costs of the former would be approximately £300 million, with subsequent annual administration costs running to £89 million.

Employers operating an alternative qualifying scheme face start up costs of £50 million in the first year and £12 million per year thereafter.

On a more positive note for employers, currently schemes must protect the value of early leavers’ deferred pensions against inflation by increasing the amount of pension payable from normal retirement age by the increase in the retail price index or at a 5% compound rate, whichever is less. The cap on the revaluation of deferred pensions will be reduced from 5% to 2.5% each year for future accruals. This should save employers an estimated £250 million per year.

These new provisions will have an enormous financial and administrative impact on employers which should not be underestimated and employers will not be able to contract out of the duties imposed on them. In addition, any employer who wilfully fails to comply with certain requirements will be guilty of a criminal offence and liable to imprisonment and/or a fine.