Since 2012, Auto-enrolment has been introduced in stages. Whereby a employer must offer it’s workforce a Defined Contribution pension scheme.
All employee’s will be automatically enrolled. With the aim of giving them a better income in their retirement. In addition to the basic state pension.
So what is Auto-enrolment ?
This is where an employee who meets certain entry level requirements, is made a member of a workplace pension scheme.
In previous years, many employee’s had to decide whether they wanted to join such workplace pension.
But since 2012, employer’s were given staging dates to comply with. According to the number of employee’s that they had working for them.
This has resulted in millions of people building up a pension pot. Which can provide them with an income, from the age of 55. Although this will increase in April 2028 to age 57.
So who is automatically enrolled ?
It doesn’t matter if you work work or part-time as log as you meet certain criteria being:
- You work within the UK
- You aren’t already active in another scheme with that employer.
- Are aged over 22, and under state pension age.
- You earn more than £ 10,000 for this current tax year (2023/24)
If you earn less than £ 10,000 but above £ 6,240, your employer doesn’t have to enrol you automatically into their pension scheme.
However, you can ask to join yourself and opt-in. Your employer cannot refuse your request. So they must make contributions on your behalf.
What rates of contributions apply ?
To make the scheme affordable there is a basic minimum contribution rate.
Being 4% paid by the employee, 3% by the employer and 1% given in the form of tax-relief. So 8% as a collective amount. The contributions and tax-relief is normally added through payroll to things things simple to administrate.
The level of contributions are based on earnings between £ 6,240 up to limit of £ 50.270 (as per the 2023/24 tax year). This is known as “qualifying earnings”.
As some kind of incentive to attract staff and personal, an employer make contribute more than this minimum amount.
A previous employer that I worked for, would allow employee’s to contribute 10% and they would match it to 10%. An employee could pay more in, but employer would only contribute up to 10%.
Reviewing my contributions and investments ?
It pays to look at what level of contributions an employer contributes, and also which provider they use. Most companies will outsource to pension provider as they don’t want to administrate it themselves or employer extra staff to control.
It’s also worth looking at the types of investments and funds that you can invest in. Most providers may offer limited funds, and people will automatically be investing in a default fund or a lifestyle fund. Which is dependant upon their age. We don’t teach people how to invest, so very few people will even know where their funds are invested, or how they are performing. Most people will just see a valuation figure going up and down over time.
A lot of people won’t even look at their pension on a regular basis as it may be many years ahead of them. They may just glance at annual benefits statement.
Make a decision to get involved in your workplace pension and if so review on a regular basis.
It may be the best investment decision you make to improve your future pot value.
Should I stay in or opt out ?
The idea of opting in is seen as a valuable perk offered by tour provider. Some may say it’s free money as they contribute to it on your behalf.
Opting in is valuable for most individuals as it boosts their retirement savings for access at a later date. Plus pensions are considered one of the most tax-free products on offer. All gains and profits are free from taxable gains.
The sums in the pot can be paid tax-free payable to dependents if somebody dies before the age of 75. As long a they act within 2 year rule. After 75 they can still be paid out to beneficiaries but will then be subject to tax at their marginal rates.
Most people will spend many years working, so a person in their 20’s or 30’s could build up a sizeable pot by the time they access in their 50’s or 60’s
Do I have choices to be enrolled ?
Anybody can opt out if they have been automatically enrolled.
But on doing so, you will lose the free pension contributions on offer. the extra added as part of tax-relief. You may also some employer benefits as death-in-service as a insurance policy.
You can quite easily opt out by speaking to your HR team within your workforce and complete the relevant form.
If you do opt out within the 1st month of being enrolled, and any such payments that you have made can be paid back to you.
If you opt out after 1 month, any payments that you have made will stay within your pension pot for access at later date, or cashing set after the minimum pension age currently 55.
You do have the option to re-join the scheme in future years. An employer will enrol you back into the scheme every 3 years. As long you meet the eligibility criteria and scheme requirements.
What happens if my level of earnings changes ?
As your salary or pay increases with an annual pay award. Your level of contributions should be increased as it is based on a % of your salary. This will be done automatically for most people through PAYE.
Can I amend my level of contributions ?
This will probably depend on the scheme rules for your workplace pension. So it may be checking with your employer or pension provider directly ahead of making any possible changes. Some providers will offer flexibility but not all.
A simple illustration my employer only offers fixed contributions of 8%, but free to change current and future investments or funds on a regular basis.
Some schemes may offer flexible arrangements, but check with your employer or pension provider.
What happens if my employer doesn’t comply with AE rules ?
Your employer must act with accordance of the AE rules. If they fail to comply they could be fined or face enforcement action.
This could involve the Pensions Regulator becoming involved.
http://www.the pensionsregulator.gov.uk
They are ultimately responsible for workplace pensions in the UK. Whereby they can investigate concerns over poor administration or the failure to pay contributions into a scheme.
They have a free whistleblowing service, if you are concerned that your scheme is failing to act in a fit and proper way.
Where can I find out more and specific details about AE pensions.
I can recommend that you check our Moneyhelper.org.uk website.http://www.moneyhelper.org.uk They offer a free helpline on 0800 011 3797. Which is free and impartial and they also have option of live web chat.
Or use the Gov.uk.website on https://www.gov.uk/workplace-pensions
If you found the above information useful, or wish to look at the blog posts about pensions, check them out on www.moneyminted.co.uk
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