From 2012, if you want to run your own Company Scheme, it will have to meet certain qualifying criteria under the new National Employee Savings Trust (Nest) scheme.

The Government has designed simple qualifying criteria for Company Schemes:

• Does it permit auto-enrolment?
• Does it deliver a minimum accrual rate of 1/80 of pensionable earnings (contracted-out final salary schemes)?
• Does it deliver a minimum accrual rate of 1/120 of pensionable earnings (contracted-in final salary schemes)?
• Does it meet the minimum contribution of 8% of all earnings between £5,035 and £33,540 a year (in 2007 terms), with at least 3% paid by the company, and does it have a default investment fund (money purchase, stakeholder and GPP schemes)?
• Are employees auto-enrolled within 90 days of joining the company?

If employees aren’t auto-enrolled as soon as they join, the minimum you must pay into a money purchase, stakeholder or GPP scheme increases to 6%, and the minimum total to 11%.

If it passes these relevant criteria, then it will qualify and you do not need to use a Personal Account. Auto-enrolment is already available for many final salary and money purchase schemes, but eligible employees who opt out and are not members of a stakeholder or Group Personal Pensions scheme will have to be enrolled into a qualifying scheme, unless they opt out again. Under the Distance Marketing Directive for stakeholder and Group Personal Pensions schemes, auto-enrolment isn’t currently permitted, but will be from 2012.

However, an employer can already amend their contract of employment with the employee to facilitate auto-enrolment. Where you calculate contributions based on different rates, earnings bands or definitions of pensionable pay, your scheme will still be ‘qualifying’ provided the contributions do not fall below the cash equivalent of the minimum level for Personal Accounts.

This is only likely to be an issue if your employees receive significant amounts of overtime, bonuses and other non-pensionable earnings.

It’s important to continue to provide good Company Scheme provision now, and there are a number of relaxations to current regulations being brought in to help encourage this.

• Reduction in the cap applying to the revaluation of deferred pensions in defined benefit pension schemes from 5% to 2.5% from 6 April 2009.
• Repeal of the requirement relating to Safeguarded Rights arising from divorce settlements, removing the complexity that applies to these.
• Removal of the employer stakeholder designation requirement from 2012, as this requirement will be obsolete once auto-enrolment begins.

What this means for you?

The qualifying criteria are intended to allow you to easily compare and choose the form of pension provision that best suits your company. They will ensure that you don’t lose the ability to offer good Company Scheme provision for those you feel need it.

The implementation of these measures will deliver potential savings for employers.

The changes proposed for 2012 are designed to help more people save for their retirement and, as we have indicated, this will have an impact on the costs to your business. The Government recognises this and is introducing measures to help offset some of these costs and encourage the continuation of good-quality company provision.