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Employment Law Services Ltd

Pensions

The objective of a pension is to provide the individual with a decent, and regular source of income following retirement.

State Pension

The government pays the basic state pension. However, the amount of the state pension is very meagre. The entitlement arises for men at the age of 65, and for women (born before 5th April 1950) at the age of 60. The state pension age for women born on or after the 6th April 1950 is rising to 65 in stages between 2010 and 2020.

Individuals need to have had a significant number of “qualifying years” – being yeas in which their income was sufficient to have to pay National Insurance contributions. Currently men need 44 qualifying years, and women need 39 qualifying years to get the full state pension. This is due to change for those who reach state pension age on or after 6th April 2010, who will need 30 qualifying years for a full state pension.

For the tax year 2008-2009 the full state pension was £90.70p/wk for a single person, or £145.05p/wk for a couple.

The rate for a single person in the 2009/2010 tax year is £95.25 p/week. From April 2010 that figure will increase to £97.65 p/week.

Company Pension Schemes

Many businesses offer membership of a company pension scheme to their employees. Traditionally there have been two forms of such pension schemes; a “final salary” scheme, and a “money purchase” scheme. As the name suggests the amount of pension paid to members of a “final salary” scheme is set at a percentage of their final level of salary with that particular employer. These schemes have proved to be expensive for employers, and so most employers have been closing such schemes in recent years. The “money purchase” scheme is where an individual pension fund is grown from the contributions made by that individual and his/her employer. On retirement the value of the actual pension will depend on the value of the fund grown for that particular individual.

Stakeholder Pension Scheme

Employers are still NOT obliged into a pension scheme for their employees. However, employers with 5 or more employees must provide their employees with access to a pension scheme. Such schemes are known as “stakeholder pension” schemes. Employers are obliged to tell employees if they have such a scheme for their employees, and have to arrange for the relevant deductions from pay to be made if the individual employee wishes to join the stakeholder pension scheme. The level of take up on stakeholder pension schemes has been quite low, and frankly it is likely to stay that way unless the Government obliges employers to pay contributions into such schemes.

Under the provisions of the Employment Rights Act 1996 employers are obliged to provide details of pension arrangements to employees in their written particulars of employment. Therefore this information will be given in the employee’s written contract of employment (link PAYG contract of employment).

Changes in the future- Pensions Act 2008

The Pensions Act 2008 received the Royal Assent on the 26th November 2008. This legislation will introduce major changes to the obligations on employers with regard to the provision of pension arrangements to their "workers".

The term "worker" will include all those working under a contract of employment (employees) and any individual that undertakes to do work or perform services personally. In addition, agency workers will be entitled to membership of a workplace pension scheme under this Act. The liability for the pension provision for the agency worker will fall on the organisation that is responsible for paying the wages of the agency worker.   

The Act will require every employer from 2012 to provide a "qualifying workplace pension scheme" to their workers that are aged over 16 and under 75 years.

There will be an automatic enrollment into the required pension scheme for all workers aged over 22 years and under the employer's pensionable age, who earn between £5,035 and £33,540 per year. Workers may choose to opt-out of the scheme if they so wish, but the presumption is that they will be members of the scheme.  

Various linked legal rights will be given to workers in relation to the pension provision. A new claim of automatic unfair dismissal  will arise where an employee is dismissed as a result of exercising any of his or her rights under the Act, or as a result of the employer being prosecuted under the Act. In addition, workers will be given a new right "not to suffer a detriment" (any form of penalty short of dismissal) as a result of enforcing their rights under the Act.

New criminal offences are created by the Act. These include the offence of a wilful failure by an employer to comply with the Act's automatic enrolment provisions- which will be punishable by up to two years imprisonment and/or a fine.

Clearly, employers will shortly have to give this legislation their attention, and make the necessary arrangements.  

 

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