What The New Auto Enrolment Pension Scheme Means For You

Pension schemes often prove to be something of a headache for most employees. What age do I start? How much do I save? What kind of pension should I chose? What happens if I move employers? How do pension contributions affect the amount of tax and national insurance I pay? These are just some of the questions that people have to consider when joining a pension scheme.

With the retirement age continuing to climb, an aging population, and the economy still in a bit of a mess, it’s tempting to just forget about a pension and put money in savings instead. Add to that the increase in collapse of pension schemes and the seemingly dire state of many private pension schemes;  statistics from 2012 suggest that 90% of UK companies’ final salary retirement schemes have been closed.

In an apparent bid to help people save for their retirement, the UK government has introduced the automatic enrolment pension scheme. The aim is supposed to be to help encourage a culture of saving for retirement, as the state pension currently hovers around the £110 a week mark – not enough to live on for most people. It is also meant to make pension schemes more transparent.

Rollout of this scheme started in October 2012 and will be completed by 2018. When the company you work for has to complete rollout by depends on its size, with the largest employers starting first. Now Pensions provides details on when your company will have to begin auto enrolment. The government has also drawn up a quick questionnaire that will help you find out when you be enrolled into the scheme.

The Pensions Regulators will write to each company 18 months before they have to start enrolling employees. Even though the automatic enrolment scheme has already been started the government is still changing some of the rules, which is causing a headache for employers.

This scheme means that employers are legally required to enrol employees if they are not already in a pension scheme; over the age of 22 but under the state pension age; earn more than £9,440 a year and work in the UK. Employees can still opt out of the scheme, but only after their employers have enrolled them. If you opt out you can rejoin at any time. Currently, the minimum employee contribution is 0.8%, but this will rise to 4% from October 2018. In line with that, employer contribution will rise from 1% today to 3% in October 2018.

One thing to note is that automatic enrolment does not affect you if you are self employed or the director of your own company.