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Pensions: Get ready to embrace auto-enrolmentCreated by Arabela in Retirement and pensions
Auto-enrolment, buy a new initiative to get millions more people saving for retirement, ed has already begun among Britain’s biggest employers. The gist of the programme is that all UK firms with at least 1 employee will need to automatically enrol their employees into a company pension, and start contributing into this pension, unless the employee opts out. In this article, we’ll go over the basics of auto-enrolment, including who is entitled to an automatic pension and how much they will receive, and whether or not it’s a good idea to opt out.
Auto-enrolment will affect you if you don’t already have a workplace pension, are between the ages of 22 and the state pension age, and make more than £8,105 a year. If you meet these requirements, your employer will automatically give you a pension, deducting 1% of your salary and matching that contribution with a further 1% from their own coffers.
Though the implementation is staggered, with bigger businesses being forced to comply first, all employers will be in compliance with the new law until April 2017. In October of that year, all employers will then kick up their contributions to 3% of each employee’s salary, while automatically deducting 2% from the employee’s pay to be put into savings. These figures will rise again in October 2018 for a final time, where employers will be contributing 5% and employees will contribute 3% of their salaries automatically.
The idea behind the scheme is to make savings easier, as you won’t have to make any decisions about joining a company pension fund or how to invest your pension savings. Instead, the only decision you’ll have to make is whether you want to continue receiving employer contributions to your pension, or whether you want to opt out of the programme. Be warned, however, that opting out could leave you in danger of retiring in poverty, so you will need to make your own private pension provisions if you decide not to take your auto-enrolment pension.
According to a recent survey of businesses that have already complied with auto-enrolment, as may as 95% of people are happy with their automatically enrolled pension and have not yet opted out of the plan. This is understandable, as eventually employers will be contributing 5% of your salary towards retirement, which is essentially free money, and pensions are subject to government tax relief of at least 20%. This means you only need to contribute £80 to net a full £100 in your pension.
Of course, if you prefer to go it alone, there are many investment opportunities already in place, including self-invested personal pensions, stakeholder pensions, and stocks and shares ISAs. The latter are available from many providers, including Shepherd’s Friendly, and are often preferred because they offer more flexibility than traditional pensions.