Home > Employee Benefits > UK Pension Reform: first wave scheduled for October

UK Pension Reform: first wave scheduled for October

To encourage savings and help mitigate the current pension crisis, the UK government will introduce “Personal Accounts” to all pension plans. The new legislation will require all UK employers to offer a pension plan, automatically enroll employees who meet certain eligibility requirements, and make a minimum contribution. This is the latest phase of the reform efforts proposed by the Pension Act of 2008.

Eligibility Requirements

Employees between the ages of 22 and 75 with current annual earnings of £7,474 or more must be automatically enrolled in an employer-sponsored pension plan. This includes part-time and contract workers, and re-enrollment will occur every 3 years. Employees will have the right to opt out of the plan, but they must actively do so within 30 days of being enrolled.

Minimum Contributions

As part of the reform effort, at least 8% of an employee’s qualified earnings must be paid into the pension. Qualified earnings include commissions and bonuses. The 8% figure is broken down as follows:

* 3% employer contribution (on earnings between £5,564 and £39,853)
* 4% employee contribution
* 1% government tax relief

Failure to comply with the legislation could result in fines of up to £50,000 and possibly 2 years imprisonment.

The state pension plan will still exist, but its payouts are minimal. The Pension Act of 2008 created Personal Accounts to help workers build a larger nest egg and ensure a financially stable future. The legislation will begin to take effect in October 2012 and will be phased in through 2017. For more information on this, or any other international benefits issues, please contact our Employee Benefits Team.

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William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.

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