10 key facts about automatic enrolment into workplace pensions
Even if you have a good grip on your day-to-day finances, you may be a little more hazy when it comes to longer-term financial planning. Here's what you need to know about changes to pension laws
1. An important change has happened
Back in 2012, a new law was introduced meaning millions of working people started saving for the first time in a workplace pension. You may already be doing this; if not, you will be affected if you're:
- Aged 22 or over
- Under state pension age
- Earning more than £10,000 a year
- Working or usually working in the UK
- Not already in a workplace pension scheme.
Your employer will automatically enrol you into a pension - you don't have to do anything unless you choose to opt
2. Why the change has happened
It's a fact that we're all living longer. Having 20 or more years in retirement is great provided you can still afford to do all the things you want to. And, sadly, it's also a fact that there are not enough people saving to secure their financial future. The State Pension is a foundation but you may want more.
Some critics claim the government's decision to link the auto-enrolment
threshold to the PAYE tax threshold is bad news for the low paid, most of whom
are women working part-time, as they will be excluded. Analysis of
official statistics by the TUC found that 865,000 women earn between
£5,564 and £7,605 (last year's National Insurance
primary threshold), while a further million women earned between
£7,605 and £10,000.
3. How the change will affect you
This is how your workplace pension pot builds up - there are three
contributions going into it. First, you pay in a small percentage of your
wages. Second, your employer puts some money in too. And finally, you benefit
from tax relief. This means that some of the money you earn that would have
gone to the government as income tax, now goes into your own pension instead.
So taking up a workplace pension should allow your savings to grow a lot
4. When this will affect you
Six million people have already been enrolled into a workplace pension in the past few years. Larger companies were automatically enrolled first, with the scheme being rolled out to medium and small companies in stages over six years. All affected companies will be enrolled by February 2018.
You don't need to do anything - your employer will write to you nearer the time it starts for you giving you all the information you need. However, you can find out when you're likely to be automatically enrolled by looking at our timetable.
5. What's in it for you
Once you start paying into the workplace pension scheme, you'll be building up a pension pot and improving your financial security once you're older. Your employer does all the paperwork - so it's hassle-free for you to start saving.
Use the calculator below to see how much your employer will be contributing to your pension in coming years.
6. Putting you in control
Of course, saving in a workplace pension is entirely up to you. You can
still opt out. But it's worth remembering that it's not just you who's paying
into it - your employer and the government (in the form of
tax relief) will contribute too.
7. Return on your investment
There are different ways to plan a healthy financial future and putting
money aside is just one. But with a workplace pension your employer is paying
in too, which won't happen with your mortgage or an ISA.
Realistically, we all know that pensions can go up as well as down. But for more than 95% of people, on standard assumptions, the expected increase in income is greater than the cost of their contributions, even after taking inflation into account. Most will get far more than this - the large majority of savers can expect to get back more than twice what they put in*.
8. Advice for new/future mums
If you're receiving maternity, adoption, or carers' pay above
£676 a month, and you meet the eligibility criteria, then your
employer will still enroll you into a workplace pension.
9. You can take it with you
The money saved in your pension is yours to keep, even if you change jobs.
You don't have to give it back and you'll be able to access it when you retire.
You may even be able to combine it with your new employer's scheme.
10. More information
For more information visit workplacepensions.gov.uk.
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The content on this page is supplied by the Department for Work and Pensions
*DWP research report Saving for retirement: Implications of pensions reforms on financial incentives to save for retirement
Last updated: over 1 year ago