Workplace pensions rules have changed. Every employer in the UK will be required to help more of their workers save for retirement. But what does it mean for you? James Robson explains.
We will all have probably heard phrases in the press recently such as “auto-enrolment”, “workplace pensions” and “NEST” and no doubt some of us will have seen the television advertisements featuring Karen Brady, Nick Hewer and Dragon, Theo Paphitis. But I suspect some of you may be unclear as to whom it affects and if it will affect you.
So, without going into too much detail let’s try and clarify things a little…
The previous rules for employers regarding workplace pensions stated that if you had five or more staff you had to make a scheme available for your workforce but were in no way obliged to actually contribute to it on their behalf. This, in reality, required little more than the employer putting up a poster in the canteen with the contact details for a pension provider. Under auto-enrolment this will change. The largest companies have already had to comply with the process which started on the 1 October 2012 and is being phased in over a five-year period.
Eventually this will trickle down to incorporate all companies through a series of staging dates. Once fully applied an employer with one or more eligible (aged between 22 and state pension age) employees will need to ensure contributions of 8 per cent of salary are made to a suitable pension scheme. The 8 per cent contribution is composed of a 3 per cent employer contribution, a 4 per cent employee contribution and 1 per cent of tax relief, although if your employer was feeling generous he could pay the whole 8 per cent or offer to further supplement your employee contribution.
Auto-enrolment doesn’t specify a single pension scheme or even a type of pension scheme, so if your company already has a scheme in place it’s quite possible that it is already fulfilling its auto-enrolment obligations.
This being said, it’s important for companies to check that they are compliant, specifically that the levels of contribution are sufficient to the staff it employs, as the rules are extensive.
For employers who don’t wish to set up and administer their own company pension scheme the government have set up a pension scheme called NEST (National Employers Savings Trust) into which employers can choose to pay contributions. NEST however only provides limited functionality and so to date inflows have been limited with most firms opting to run their own arrangements.
A financial adviser can help you find out more about work place pensions and auto-enrolment, personal pensions and the other options available to you to save for your retirement. Find an financial adviser in your area.