Pensions Act 2008

Wappers

I know this is a little while off yet, but I'm trying to understand implications of the recent Pensions Act 2008 http://www.dwp.gov.uk/pensionsreform/pensions_act_2008.asp

At the moment my (current) employer contributes 4% into a defined contribution scheme, I do not have to contribute to get this. My reading of the act is that from 2012 I would have to contribute 3% to get this? I know there is an opt-out, but the plan is to have to automatic re-enrolement, how likely do you think it would be that the employer's scheme would change to require extra 3% from employee (+1% state)?

I prefer to contribute into another better performing scheme.

MrChips

From memory, the idea is that it will become mandatory from 2012 for an employer to offer a scheme ("Personal Accounts") to all employees whereby it offers at least a 3% contribution with the employee paying 5% (of which 1% is met through tax relief at 20% basic rate).

Employees will be opted in by default but will have the option to opt out if they wish.

At the moment, no one knows if most employers who currently offer a better scheme will "level down" to this basic option. Have you asked your current employer about its plans?

You will certainly not be forced to pay 4%, but there is no guarantee that your employer will continue to offer 3% if you don't pay anything yourself.

Debt_Free_Chick

Mr Chips is right.

An employer can offer another work-based pension scheme, instead of Personal Accounts. The work-based scheme needs to (broadly) operate along the lines of Personal Accounts, with regards to enrolment, contributions etc.

It's still unclear, but it looks like your employer will need to require a contribution from employees in order for its scheme to qualify as replacement for Personal Accounts. BUT ... you can opt out of Personal Accounts and it will be up to your employer to decide whether to continue to make its contribution. In other words, will your employer allow you to opt out of your own contributions, only? Especially as Personal Accounts is an "all or nothing" option - you're either in, for both your own contributions and those from your employer, or your out. At the moment, there is nothing to stop employer's allowing you to opt out of your own contributions only.

If your employer is to allow an opt-out for your own contributions only, then you will be free to save those contributions elsewhere - whilst still getting the company's contributions into your work-based scheme.

dunstonh

I prefer to contribute into another better performing scheme.

Not if there is free money involved. As examples on here have shown in the past, it can take upto 20 years for returns on alterantives to make up the free money lost by not being in the employer scheme with an employer contribution. It may be that if you want to pay more you use your own scheme but you should always take the maximum free money.