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Following the Pensions Act 2007 (see What's in the Pensions Act 2007? dated 19/10/2007), the reforms set out in the second of 2 white papers (Personal Accounts: a new way to save dated 12 December 2006) were introduced to Parliament on 5 December 2007.

The Pensions Bill 2007 proposes:

• Automatic enrolment into a qualifying workplace scheme from 2012
• The introduction of the new personal accounts scheme designed for those employers who do not currently run a pension scheme
• Executive powers for the Personal Accounts Delivery Authority, allowing the authority to design this scheme at arm’s length from Government
• A role for the Pensions Regulator as the compliance body for these reforms, ensuring employers meet their new obligations
• Further simplification to the Additional State Pension by consolidating peoples rights under Graduated Retirement Benefit, SERPs and S2P into a single cash sum
• Legislative requirements which apply to “safeguarded rights” to be abolished

Some of the key features of personal accounts will be:

• Subject to their ability to opt-out, eligible employees (or “jobholders” under the Bill) will have to be automatically enrolled into either a personal account or an employer sponsored scheme which meets the relevant “quality requirement”. This applies to employees aged 22 and over (but below state pension age), who earn more than around £5,000 a year
• Employees will contribute a minimum of 4% of their “qualifying earnings”, matched by a minimum 3% employer contribution and 1% in tax relief
• Provisions will ensure that personal accounts complement, rather than compete with, existing employer pension provision. For example, there will be a contribution limit
• Measures to ease the burden of regulation on employers, including a reduction in the cap on revaluation of deferred pensions from 5 per cent to 2.5 per cent - for future accruals only

In addition, the Bill also makes provision to reduce the cap on revaluing deferred pensions from 5 per cent compound to 2.5% for pensionable service on or after the Bill comes into force. Commenting on this measure, Minister for Pensions Reform Mike O’Brien said:  “We want to encourage employers who provide Defined Benefit pension schemes while ensuring that members’ benefits are protected. There is no magic bullet solution but we believe that the reduction of the revaluation cap achieves a balance, saving employers around £250m a year on average in the longer term and helping to keep defined benefit schemes open for the benefit of workers”

With different periods of pensionable service needing to be revalued at different rates, the administrative burden would need to be closely weighed up against the potential benefits. It is therefore clear this latest piece of ‘simplification’ will have practical implications for pension scheme administration.

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