From the first week of July, around 10,700 employers will be auto-enrolling their staff into a new workplace pension scheme. This move is the largest staging date of the workplace pension initiative so far as it involves the highest number of employers at one time.
The Government’s workplace pension scheme is a new system where employees are automatically drafted into pension schemes by their employers. A percentage of an employees salary (0.8%) will be automatically taken from their pay and will be matched by a 1% contribution from their employer and an 0.2% top up from the Government in the form of tax relief. These figures will eventually rise over time, for instance in 2018 workers will be contributing 4% of their salary, with 3% coming from their employer and 1 per cent from tax relief t0 make a total of 8% of a salary in contributions per year. If an employee wishes to make larger contributions, they can do so. They are not automatically enrolled, the scheme is not compulsory and you can choose to opt out. It is believed that around 10% of employees have opted out of the scheme so far.
The idea around it is that a small portion of your pay is automatically placed in your pension pot. By turning it into an automated system, the Government hopes it will convince everyone to get into the habit of saving for retirement whilst contributing enough to ensure that they will get a good pension.
People earning less than £10,000 a year or those under 22 will not be automatically enrolled. Medium sized businesses are now due to start the auto-enrollment process. The scheme first began back in 2012 with the largest employers, however the smallest employers won’t have to launch their scheme until 2018. By May 2014, over 15,000 employees had confirmed their details.
If you choose not to have a Work Place pension, you can top up your Government allocated pension with Pension Credits once you are over the age of 65.