Automatic Enrolment into a Workplace Pension
We all need some money to live on once we retire, and most people in the UK receive a state pension from the government to cover basic needs. It is a good idea though to have a little extra money in the form of a pension fund, allowing you to save and have a larger amount to live on after retirement.
Since October 2012, all employers must by law, enrol any eligible employees into a Workplace Pension scheme. This is called Automatic Enrolment and those who qualify must be:-
- not already in a workplace pension
- aged 22 or older
- under State Pension age
- under State Pension age
- earning more than £10,000 a year
- work within the UK.
All employees who fulfil this criteria, whatever their type of work must be automatically enrolled in a workplace pension.
The recent changes mean that employees are expected to create their own private pension provision and employers are expected to contribute. All businesses are required to have implemented these enrolments by 1st February 2018 after following a list of staging dates set by the government. Substantial fines are being handed out already where employers have not complied or adhered to the staging dates. This is a result of spot checks performed by the pensions regulator to ensure that businesses are compliant.
The minimum workplace contribution this year  is 2%, which is made up of 0.8% from the earnings, 1% employer contribution and 0.2% tax relief. This rate applies where annual earnings exceed £5,876 and fall below £45,000. These figures are likely to change though as final staging dates are approached. Employers are required to enrol employees afresh every three years, which means employees not wishing to be included will have to actively opt out each time.
Group [Workplace] Personal & Stakeholder Pensions
Employees can opt out of being enrolled in the workplace pension scheme if they wish, although it’s a good idea to be included. Employer contributions and tax relief make the scheme worthwhile, and there could also be benefits for partners in the event of the employee’s death.
For those who are not eligible for enrolment in a workplace pension scheme there is the option of a group personal or stakeholder pension. These are similar to a private pension, where an employer chooses the provider, but the employee deals with that provider and funds are paid in directly from wages. Here, there is less control for the employee over how the money is invested, and the employer is not required to pay into these pension schemes. If the employer is not paying contributions into a personal or stakeholder pension, the employee should look around for the best deal available.
Questions about Workplace Pensions
Before deciding whether to participate in the workplace pension scheme, employees may wish to find out some specifics from their employer, These might include:-
Whether or not they are eligible for automatic enrolment in a workplace pension
- Is it a personal or an occupational pension scheme
- What will their contribution be
- Will the employer be making contributions, and how much
- How will the money be invested
- Will they be regularly updated on how much is in the fund
- If they opt out, can they join at a later date
The amount of contributions paid should appear on the employees wage slip, and on the yearly P60. With these schemes people can save as much as they desire, or have several plans at once, although there is a tax relief limit. Getting some professional advice on all aspects of workplace pension schemes, is a wise move before making a commitment.
Warning – Several pension scams featuring fake investments have emerged since 2015, which have resulted in people being conned out of their money. Contact your financial advisor to find out about these scams and how to avoid them.
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