Recently, I am focusing on a project: pension automatic enrolment. Our company will start the auto enrolment of pension on 1st of Jan, 2014. In last few months, I received many questions from our employees about the scheme. To help others in the similar situation, I’ve summarize some Q&A.
What is the pension automatic enrolment?
A new law means that every employer must automatically enroll workers into a workplace pension scheme
So who will automatically be enrolled into a workplace pension scheme?
Under the new system, those who work in the UK, are aged over 22 and under the state pension age, are not already in a scheme, and earn more than £9,440 a year will automatically be enrolled.
Do I have to take part?
No. You may decide that you need all of your monthly pay to make ends meet or you have a private pension policy you think is sufficient. The only thing you need to do is to fill in the opt-out form within 1 month.
Those who opt out will also be enrolled again every three years by an employer, or after three months at a new job, at which point they will need to complete the opt-out process again.
How much will I save?
At first, an employee will only see a minimum of 0.8% of their earnings going to their workplace pension. Their employer will be obliged to add a contribution that is the equivalent of 1% of the worker's earnings. Tax relief adds another 0.2%.
However, these amounts will increase to a minimum of a 4% contribution from the employee, 3% from the employer, and 1% in tax relief from October 2018. However, employer could set up the percentage for both parties beyond that.
When I could get the funds?
Employees will not be able to get at the funds until the age of 55 at the earliest so, in the meantime, the money is invested. The pension firm, insurance company, or government-backed organisation that is running the scheme will give each worker a choice on how risky they want these investments to be.
Most of employees chose the default option. This generally starts very safely, tries to make a bigger return during a worker's middle age, then plays safe again as he or she approaches retirement.
Comments
Really appreciate you sharing this information Shanshan - great information and very helpful but also it's fantastic to see you sharing something from your own project so that others can benefit from it. It's what this community is about thank-you.
Perfect! This is something that I had in my ' to do' list - to get a clear understanding of what it was all about. My Finance Director has said she has it all in hand, but I wanted a simple, easy to grasp summary of it. This is just what I needed!
Many thanks for this.