Connected Research

Union policy research in the 21st century

DWP announces transitional regime for 2012 pension reforms

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The DWP has launched a consultation exercise, Workplace Pension Reforms – Completing The Picture, surrounding the introduction of a set of regulations due for 2010 and concerning the 2012 pensions reforms.

The 2012 pensions reforms refer to the introduction of the system of personal accounts for those who don’t otherwise have access to an occupational pension scheme, mandatory for employers unless individuals choose to opt out, and based on a minimum employer contribution of 3% (and a total of 8%, with an additional 4% coming from employee contributions and the other 1% in the form of tax relief).

Key amongst the suggestions the DWP is making in the consultation is for a staged implementation of the introduction of personal accounts. Starting in 2012, employers will be introduced on to the system over a period of three years, ranging from large employers in the first place to the smallest ones by the end; and will, during that period, make contributions of no more than 1%. Once all employers have been introduced to the system, the employer rate will increase firstly to 2% and then, one year later, to 3%.

To put a timeline on this, employers will be introduced to the system between 2012 and October 2015, at which point the rate will rise to 2% and it will not be until October 2016 that the system will be in its ‘steady state’ with all employers paying 3%.

The consultation is a large one and needs to be digested properly, but my initial reaction is one of disappointment. The reason for the staged process is the load at key points on the key delivery agents – largely, The Pensions Regulator and the Personal Accounts Delivery Authority – together with employers being likely to leave participation until the last possible moment, becoming unmanageable. This is perhaps an understandable perspective but, at the same time, the system of personal accounts was suggested in May 2006 and subject to a further consultation in December 2006. The Personal Accounts Delivery Authority was legislated for in the Pensions Act 2007, and had its remit broadened in the 2008 Pensions Act which also introduced the notion of auto enrolment on the basis of minimum employer contributions. This implies – provided there is no further slippage – a period of introduction lasting 10 years from gestation to completion (actually, 10 and a half, given the 1 October anniversary dates introduced in the guise of ‘better regulation’). Two whole parliaments.

This is clearly an important and complex reform and the time is perhaps not the most propitious. I’m sympathetic to the notion of easing workloads that could be tough to manage. But 10 years? 8 years from the last piece of major legislation? 6 years from the date of the Regulations? Just how long can it take for systems to be established and for employers to get used to the idea?

The reform has all-party support so, unless that consensus is broken, the reforms will survive any change of government in the next election (and in the one after that…). However, I would like to have seen a quicker (much quicker) period of implementation given this major piece of reform aimed at extending the principle of occupational saving for retirement. In the meantime, it looks a complete victory for any strategy of kicking the notion into the long grass until it really has to be dealt with – and this level of capitulation to is perhaps the most disappointing thing of all.


Written by Calvin

25/09/2009 at 12:06 pm

Posted in Pensions

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  1. This is disapointing stuff from the government, so I agree with Calvin in every respect except one: I’m not so sure that this is especially complex to put in place. The personal accounts regime is just a very large, Trust-based defined contribution scheme. This is a seriously simple approach to pensions provision as it requires a minimum of admin support (virtually none, beyond the process of collecting the contributions and investing them – and these arrangements need to be in place on day one, so the only issue is scaleability…The collection process is surely already in place – PAYE and NI are the obvious vehicles – and the investment process will need to be in place before the thing starts, which is what I mean by scaleability).

    I wonder if the employer lobby has been able to persuade the government to delay.

    Ben Marshall

    25/09/2009 at 2:00 pm

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