Pensions Act 2008

Government shifts pension provision risk to employers


The Pensions Act 2008 (enacted on 26 November 2008) places on employers, both large and small, the obligation to procure a pension scheme, and pay into that pension scheme a 3% contribution, for its employees.

The key requirements will be phased in between October 2012 and October 2017, however a number of important aspects of the legislation are yet to be finalised, and some of its parameters will be changed each year e.g. relevant earnings levels.

More information

What we know this far about some of its key provisions is that;

  • “Employers will be required to automatically enrol all eligible job holders into a qualifying workplace pension and to make minimum contributions into” those schemes.
  • Implementation will be phased progressively so that
    • Large employers (120,000+ employees) will be required to act first (from 1 October 2012), then medium sized employers, then small employers
    • Small employers (payrolls <50) must act on or after August 2014
    • Employers with more than one PAYE will start their duties for all their PAYEs at the same time, on the staging date of their largest PAYE
    • The gradual phasing of contributions is not possible for Defined Benefit and Hybrid schemes. Instead, employers providing these types of scheme will be able to delay their automatic enrolment duty for prescribed jobholders until after the staging period (October 2016). These jobholders will be able to opt into the scheme if they wish during this transitional period.
  • Minimum contribution levels will also be phased in
    • Employers will be required to contribute at least 3% of the employee’s salary into the scheme from the third year of operation.
    • Employees will be required to contribute at least 5% (before tax relief at basis rate) into the scheme from the third year of operation.
    • Starting at 1% each, minimum contributions will increase gradually, over three years, to the 3% & 5% levels.
    • Employers will need to contribute on employee earnings between £7,475 and £33,540 a year (these figures will be updated for 2012 and is pending legislation).
  • Enrolment will depend on age and earnings
    • Employers must automatically enrol;
      • Employees earning more than the tax personal allowance (£7,495 for 2011/12) if they are
      • Aged 22 or over but less than the state pension age.
    • All other employees may opt in
    • Employees may opt out.
  • Types of pension schemes
    • Employers will be able to chose the pension scheme, even an existing one
    • Pension schemes must meet certain quality criteria
    • Pension schemes can be Defined Contribution, Defined Benefit or Hybrids
    • A new simple, low cost pension scheme, NEST (National Employment Savings Trust), formerly known as personal accounts, will be introduced as one such qualifying scheme
  • Written notifications
    • The Pensions Regulator (TPR) will write to all employers around 12 months before their staging date so that they know when to automatically enrol their eligible jobholders.
    • Three months before the employer’s staging date the Regulator will write again to remind them of the new duties and the need to register
  • Penalties: non-compliance can result in Fixed penalty notices (up to £50,000) Escalating penalty notices (fines or up to £10,000 per day).

Nota Bene

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Table of minimum contributions for Pensions Act 2008



Employee net

Employee Tax relief @ basic rate tax

Total (including tax relief)

1. During staging period from Oct 2012 to Sep 2016: <50ees from Aug 2014





2. Following year Oct 2016 - Sep 2017





3. October 2017