Work Place Pension and Auto Enrolment
Auto enrolment – What is it? and how does it affect you?
Auto enrolment is a government initiative to get more people saving as part of their pension scheme at work.
As from 2018 this ill good news to all employees as all employers will have to set up a pension scheme for all eligible employees. Employees will also benefit from additional contributions from their employer, additionally they will enjoy tax relief on their own contributions.
Although enrolment is a legal obligation (If you are already enrolled you should have been informed by your employer with details of how much both of you will contribute, when you were added and how to leave. If you want to, you can opt out of participating in the scheme, but only after you have been enrolled. This raises the all-important question – should you remain in such a scheme? Or opt out?
It’s important you understand the details so that you can make an informed decision about your pension/savings for the future.
With that, start with understanding eligibility. If you are between 22 and state pension age (you can check that here, https://www.gov.uk/state-pension-age) earn over £10,000 per year, and work in the UK, your employer must auto enrol you. If you don’t meet that criteria, you still have the right to request that your employer enrols you in a work place pension scheme.
Next look at contributions. As part of this initiative, both employee and employer must make minimum contributions, and these are rising in three steps each year from 2016. The exact minimum contributions take into account how much you earn, but roughly speaking the minimums look like so:
|Employer minimum||Employee minimum*||Total minimum|
|6-4-18 to 5-Apr-19||2%||3%||5%|
|From 6-Apr-19 onwards||3%||5%||8%|
* Should your employer pay more than the minimum, then this may mean your minimum is actually lower, so long as the total minimum is met.
The other benefit will be tax relief on your contributions. This means is that the government will give back some of the tax you would normally pay as part of your contribution.
Simply put, by joining the scheme, you will benefit with more money paid into your pension scheme, compared to your own personal savings plan.
It remains your choice however as a current best option ensure you are enrolled. Simply speak to your employer and make the most of your pension opportunity.