Personal Accounts: What does it mean for employers?

The introduction of personal accounts will have an effect on every employer in Britain.

Those employers who already offer employees a pension scheme will at the very least have to ensure it is exempt and amend their administration systems to be compliant.

Those that do not currently offer employees a pension scheme, or those whose schemes do not pass the scheme exempt test will have the additional burden of budgeting for, and introducing an employer pension contribution. This will apply whether they pay this contribution to an approved "personal account" scheme, or an alternate exempt arrangement.

This contribution has been set for employers at 3% of band earnings, currently described as 3% of employee earnings between £5000 and £33500. Employers will be able to phase this in, starting at 1% in 2012 and increasing by 1% in each of the following 2 years. In addition, each employer will need to offer an auto-enrolment facility for all members of staff which will need to be in place by the beginning of the 2012 tax year.

The employee will need to contribute 4% of salary, unless they elect to opt-out of the scheme, while HMRC will contribute a further 1% by way of tax relief. This 8% contribution will have to be paid into a personal account scheme unless the employer already has, or introduces an approved alternate pension scheme.
In any event every employer will want to review their current arrangements and plan a strategy accordingly.