Personal accounts scheme to be introduced from 2012

Updated March 2009

What is the personal accounts scheme?
It will be a large, multi-employer occupational pension scheme run by a trust corporation on a not-for-profit basis. From 2012, employers will be under a duty to automatically enrol certain employees in a pension scheme. The personal accounts scheme will be open to any employer who wants to use it to fulfil this duty.

What is a personal account?
Each individual enrolled in the personal accounts scheme will have their own personal account which will be portable and contain the employer contributions, employee contributions and tax relief. The service will primarily be provided through internet and email to reduce costs.

What are the minimum contributions?
The minimum required contributions as a percentage of earnings are:

• Employee 4%
• Employer 3%
• Tax relief 1%

It is anticipated that the introduction of both auto-enrolment and contributions will be phased in from 2012, but the details have yet to be finalised.

Both employers and employees can make additional contributions, although there will be an annual contribution limit of £3,600 (set at 2005 values).

Do employers have to use the personal accounts scheme?
If an employer has an existing pension scheme that is a qualifying scheme it will be able to automatically enrol employees into that scheme. An existing scheme will be a qualifying scheme if it is a registered occupational or personal pension scheme which satisfies the appropriate quality test set out in the legislation (e.g. for a group personal pension scheme - a minimum 3% employer contribution is required).

Who will be eligible for automatic enrolment?
The legislation uses the term 'jobholder' rather than 'employee'. A jobholder is anyone working in Great Britain under a contract (including a temporary contract), aged between 16 and 75 to whom the employer pays 'qualifying earnings', that is gross earnings between £5,035 and £33,540.

An employer will be required to automatically enrol all jobholders earning over £5,035 per annum who are aged between 22 years old and retirement age in a pension scheme.

Can anyone else enrol?
Jobholders who aren't automatically enrolled (for example because they are younger than 22 years old) can give their employer notice requiring their employer to enrol them.

Can anyone opt out of the scheme?
Employers cannot opt out of the scheme. Employees can choose to opt out but must do so using specific forms and within a strict time frame. Employees who opt out are liable to be auto enrolled again after three years.

Employers will not be permitted to ask job applicants if they will opt out, or offer financial inducements to employees to opt out.

Why are personal accounts being introduced?
Personal accounts are intended to help people on average and low incomes to begin saving for their retirement when they would not otherwise have access to a company pension scheme with a minimum 3% contribution from their employer. It is hoped that running a scheme on such a large scale will reduce costs and that requiring automatic enrolment will tackle problems of inertia.

What next?
The Department for Work and Pensions is currently consulting on draft regulations intended to bring automatic enrolment into force. The Personal Accounts Delivery Authority which will be setting up the scheme has a timeline which suggests that further consultation will take place later this year. We have also prepared some questions and answers which cover the draft regulations - see related information above for details.

It is anticipated that further regulations governing the remaining elements of the employer duty will be published in autumn 2009.