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BeeHive  >  BeeLines  >  2009  >  April  >  When 3% equals 0.6%

When 3% equals 0.6%

Following on from yesterday’s BeeLine (Who you gonna call?) I thought you’d be interested in a paragraph I found in Annex C of the consultation on the Draft Regulations on automatic enrolment.  Annex C, by the way, is the Impact Assessment of The Pensions (Automatic Enrolment) Regulations 2009 in case you didn’t know that already.  Impact assessments are done with most new pieces of legislation to assess their, er, impact.

The paragraph I found, paragraph 38 (on page 46), is explaining that the financial burden on employers caused through automatic enrolment will be mitigated by limiting the band of earnings for which the employer duty applies.  Here it is:

These regulations will ensure that employers automatically enrol eligible jobholders into qualifying workplace pension saving. The duty will require a minimum 3 per cent contribution from employers. In the development of these reforms DWP has aimed to minimise the burden on employers and will continue to do so as 2012 approaches. The cost associated with the minimum contribution is estimated to be £2.5 billion per year. Employer contributions, at 3% on banded earnings, are equal to 0.6 per cent of total labour costs. Total labour costs include unbanded earnings (between £1 and £5,000; and above £33,540), bonuses, overtime and other employee benefits.

So, and in a nutshell I guess, implementing auto-enrolment at the minimum level required by the 2008 Pensions Act won’t be anything like as expensive for employers as it sounds.  Hopefully all this will be explained to the employees involved too, just in case they get an inflated idea of the value of their employers’ compulsory top-up to their pensions.

What I’m saying is, if we’re going to have pensions on the cheap in future, let’s make sure everyone sees things for what they are.

If you want to read all this stuff for yourself, by the way, you can get hold of a copy of the draft regulations and all the annexes by following this neat little link here: Pensions - Consultation on Draft Regulations

Steve Bee

17 April 2009


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