Personal Accounts are being introduced in 2012 and will become a permanent feature of the Pension landscape.

What will it mean for UK employers? The introduction of the Personal Accounts cannot be ignored and the following questions and answers may throw some light on this.

What are Personal Accounts?

Personal Accounts is a name given to a new form of compulsory pension saving vehicle being introduced by the government in 2012. According to the Personal Accounts Delivery Authority (PADA), a Non-Departmental Public Body, set up to oversee the introduction of this new tier of pension saving:

"The Personal Accounts Scheme is being designed to complement not replace existing workplace pension schemes. The Pensions Act 2008 requires employers to nominate a good quality workplace pension scheme which they will use as a vehicle for the automatic enrolment of eligible employees. In the absence of a suitable workplace pension scheme the Personal Accounts Scheme will be one of the alternative schemes on offer to employers."

Who must offer membership of the Personal Accounts Scheme?

It will be a legal requirement that all UK employers that do not offer membership of a "qualifying" workplace pension scheme to their eligible employees must operate and pay contributions to the Personal Accounts Scheme. The Personal Accounts will be a Trust based defined contribution scheme. Employers will be required to register a good quality workplace pension scheme - which they feel to be most appropriate for their workforce - with the Pension Regulator at the appropriate time during a three year staging period which will commence in October 2012. The Pensions Regulator will be given far reaching powers to ensure compliance with these new requirements.

What constitutes a "qualifying" workplace pension scheme?

A "qualifying" workplace pension scheme will be a scheme operated by or on behalf of an employer which meets certain qualifying standards.

Who will be eligible for membership of the Personal Accounts Scheme?

"Jobholders" between the ages of 22 and state pension age where "Jobholders" are all workers employed under a contract of employment, including temporary workers and agency staff to whom “Qualifying earnings” are payable.

"Qualifying earnings" will be all earnings (salary, wages, commission, bonus, overtime and add-ons such as statutory sick pay) which fall in a band of earnings £5,035 to £33,540. The band of earnings will be indexed In line with average earnings.

Will it be compulsory for eligible employees to join the qualifying workplace or Personal Accounts Scheme?

Yes. The duty to enrol all eligible employees (or "Jobholders" extends to all employers. Employers will be required by law to operate a system of automatic enrolment to ensure that eligible employees join the employers chosen pension scheme at the earliest opportunity. For the first time employers will be required by law to pay contributions to pension scheme for their employees.

Somewhat paradoxically individuals will be given the right to opt out at the auto enrolment stage. The right to opt out will last for a period of three years when the auto-enrolment process will again need to be repeated. The facility enabling individuals to opt out creates a strange regime of pseudo or voluntary compulsion.

What will the Personal Accounts Scheme cost?

The three year staging period for the registration of schemes will be followed by a two year phasing period during which time the minimum level of member and employer contributions will be progressively increased. During the staging and phasing periods the contributions payable are shown in the table below.

[Note: It has been rumoured that either the staging and phasing period will be extended by a further year which means that the maximum level of member and employer contributions to the Personal Accounts Scheme will not become payable until 2017]

Size of employer	First transitional period									Second transitional period			Third transitional period			2017 Fourth transitional period
	2012 (October) (Year 1)			2013 (Year 2)			2014 (Year 3)			2015 (Year 4)			2016 (Year 5)			(Year 6 and beyond)
	EE	ER	Total	EE	ER	Total	EE	ER	Total	EE	ER	Total	EE	ER	Total	EE	ER	Total
Large	1%	1%	2%	1%	1%	2%	1%	1%	2%	1%	1%	2%	3%	2%	5%	5%	3%	8%
Medium				1%	1%	2%	1%	1%	2%	1%	1%	2%	3%	2%	5%	5%	3%	8%
Small/ Micro							1%	1%	2%	1%	1%	2%	3%	2%	5%	5%	3%	8%

Providing that a workplace defined contribution scheme such as the JIB Pension Scheme has an equivalent combined contribution input the workplace pension Scheme will be considered to be a Qualifying Pension Scheme. As 2012 approaches the contributions payable to the JIB Scheme may need to be revised in order to ensure that the Scheme is recognised as a Qualifying Scheme.

What are the alternatives to operating the Personal Accounts Scheme?

Simply if you operate the JIB Pension Scheme or a similar scheme, make the Scheme available to all employees and operate auto-enrolment you will be exempt from enrolling your workforce in the Personal Accounts Scheme. If you choose to set up your own pension scheme you would be fully responsible for the day to day administration and additional costs that this would involve.

If we choose to operate the JIB Pension Scheme what is the employers role and what do we have to do?

The JIB Scheme was designed to operate as a multi employer pension scheme from inception. The administrative procedures have been refined and streamlined over the years and you will be required to carry out only the minimum amount of administration work.

Quite simply you will have three functions to perform:

• To ensure that all eligible employees are enrolled in the JIB Scheme at the earliest opportunity.
• To deduct member contributions via your PAYE payroll each week or month and to pay the combined member and employer contributions to the Scheme promptly.
• To notify the pension administration office of all members leaving your employ and the Scheme, whatever the reason.

Absolutely all other day to day routine activities involved in running a workplace pension scheme including production of annual benefit statements and the publishing of an annual report and accounts for the Scheme will be undertaken on your behalf. All items of Scheme literature and documentation will be provided entirely free of charge. There are no hidden or unexpected costs and your total outlay will be no more than you would be paying if you operated the Personal Accounts Scheme but the administrative burden involved with the Personal Accounts Scheme is likely to be much greater.

There are a number of other questions that you feel you may need to consider such as:

• Whose responsibility is it to save for retirement?
• What level of involvement should an employer undertake?
• What is the right level of pension provision to offer employees?

The government has answered these questions by passing laws paving the way for the introduction of the Personal Accounts Scheme. The requirement to provide the Personal Accounts Scheme as the minimum tier of occupational pension provision imposes the minimum required standard which all employers will by law be required to provide.

SUMMARY:

Employers will need to decide before 2012 which of the following they wish to use as the auto-enrolment scheme for jobholders not currently a member of a workplace pension scheme:

• The JIB Pension Scheme,
• The Personal Accounts Pension Scheme,
• Some other workplace pension scheme