Auto Enrolment is a new Government initiative that means employers are legally required to help employees save for retirement. It’s being phased in from now until 2018, starting with the largest employers first.
Companies with more than 250 employees will have enrolled their staff in October 2012. Businesses with between 50 and 249 members will have followed in 2014. Firms with fewer than 30 members started the process in 2016. Everyone should be automatically enrolled by 2018.
You are eligible for auto-enrolment if:
you aren’t already in a workplace pension scheme
you are at least 22 years’ old
you earn more than £7,475 a year
you work in the UK
you are under State Pension Age
Your pension pot will comprise contributions from you, your employer and in most cases the government, in the form of tax relief. Contributions will increase gradually, according to a set timetable.
The minimum total percentage required is set at 2% initially, which increased to 5% in 2016 and 8% in 2017. Overtime and bonus payments are included in your earnings.
All dates are subject to change following government review.
These minimums don’t apply to all of your salary, but on what you earn over a minimum amount (currently £5,0351) up to a maximum limit (currently £33,5401).
In most cases you will need to contribute, but your employer can make contributions on your behalf. They could choose to pay the full 8% or even a higher level of contributions.
National Employment Savings Trust (Nest)
To facilitate auto-enrolment, the government has created a new defined-contribution pension scheme called National Employment Savings Trust (Nest). You will be enrolled into Nest if your employer doesn’t have an existing pension scheme or decides not to use a pension scheme from a provider. Nest is designed for low-to-moderate earners.
You can opt out of auto-enrolment, but you won’t benefit from your employer’s contribution or from the tax relief. You’ll only be able to opt out after you’ve automatically become a member. If you want to opt out, you’ll need to ask the person who runs your pension scheme for an opt-out form.
If you opt out during the first month of your membership any payments, you made into your pension during that time will be refunded to you. If you leave after the first month, your payments will remain in your pension pot. You can re-join at a later date.
As many people as possible will need to be automatically enrolled to have a greater opportunity to save for their retirement.