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Pensions Act

By: EconomyWatch Content Date: 22 October 2009

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The Enron and WorldCom scandals in the recent past have struck fear in people nearing retirement age. More so in the current economic climate, where companies across the globe are shutting down their shops due to the credit crunch crisis. An average employee is always under a cloud of uncertainty regarding his/her future earnings in terms of pension and annuities. In case of Enron and WorldCom, people nearing retirement found that their hard earned investments were no longer safe and waiting for them to encash them when the need arose.

Hence, the government of most countries decided to enact the Pensions Act in order to provide employees and pensioners adequate protection from economic uncertainties. The Pensions Act focuses on employers whose retirement plans that are underfunded. Plans that are less than 70% are considered to have a high risk factor. The act also requires employers to inform their employees if the retirement plan is underfunded.

According to the act, employers could also make distributions to employees over the age of 62 while the employee was still working. The reasoning behind the plan is that employees will be able to streamline their retirement plans, while working part time or as a consultant to make up for the difference in wages.

UK Pensions Act 2008

The UK government has proposed a new pension system, which provides a structure for long term pension provision. In 2007, the government established the Personal Accounts System, where it was billed as a low cost pension enrolment system. All employers would be required to contribute to their employees’ pension provisions. The Pensions Act 2007 established the Personal Accounts Delivery Authority (PADA), the independent authority responsible for delivering Personal Accounts. The Act now introduces the key requirements for the Personal Accounts system.

From 2012, all employers in the UK will be required to enroll their employees in an enrolment scheme if they are aged at least 22 and have not reached state pensionable age. The requirement to make suitable arrangements will apply for all temporary workers, full time employees, apprenticeships and directors employed under the new contract of employment. The automatic enrolment scheme is:

· The new central Personal Accounts Scheme being established by the Government

· Pension scheme established by the employer, which meets the quality requirements contained in the Act.

These requirements vary depending upon the type of scheme the employer has.

The Pensions Act also focuses on health and medical benefits. Apart from these, the Act provisions include tax relief, employer discrimination protection, and hassle free pension transfers.