Heard of automatic enrolment? Last October the government introduced a new law to help people save for their retirement. Employers have to enrol eligible workers into a workplace pension scheme if they are not already in one. So far 1.6 million people have joined with the scheme being fully rolled out by 2018.
Large employers started first, followed by medium then small employers over the next few years. This means many more people will have access to a pension at work to help them save for their retirement.
Your employer will have to enrol you into a workplace pension if: you are not already in a suitable workplace pension scheme; you are at least 22 years old, but under State Pension age; you earn more than £9,440 a year (tax year 2013-14); and you work in the UK.
Automatic enrolment applies equally to full-time and part-time workers and you’ll also be covered if you’re on a short-term contract or if you work through an agency that pays your wages.
Also, if you’re off work because you’re on maternity, adoption or carers’ leave, it won’t prevent your employer from signing you up to their workplace pension scheme.
How much will it cost me?
Your employer will let you know how much you’ll need to contribute to your workplace pension. They may tell you the sum of money that will come out of your earnings, or they may just show you the amount as a percentage of your earnings.
If they only tell you the percentages, you can work out what it means for you in pounds and pence by using this workplace pension contribution calculator from the Money Advice Service.
Use this pension calculator to work out the retirement income you might get from saving into a workplace pension scheme.
Should I stay in or opt out?
Don’t rely on the State Pension to cover you in retirement. The full basic State Pension is £110.15 a week – far below the kind of income most people say they hope to retire on. For most people, staying in a workplace pension is a good idea, particularly if the employer is contributing to it too. It’s a great way to save for retirement and so far, less than one in ten people have opted out.
But there are circumstances in which it might not make sense to stay in – for example, if you are dealing with unmanageable debt.If you want to opt out, you need to ask the people who run your scheme for an opt-out form. Complete the form and return it to your employer. If you opt out within a month of becoming a member of the scheme, any payments you made into your pension pot during this time will be refunded to you.
After the first month, you can still opt out of the scheme at any time, but any payments already made will stay in your pension pot for retirement rather than being refunded. If you opt out, you can re-join at a later date if you want to. Your employer will be required to re-enrol you back into the scheme approximately every three years, provided you are still eligible.
To find out what automatic enrolment means for you use this Workplace pension advice tool from the Money Advice Service.
*Information correct at 8/10/2013