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Pension Auto-Enrolment Scheme

19th October 2017

Pension Auto-Enrolment Scheme

As of 1st October all businesses have been required to enrol their eligible staff into a pension scheme.

But why is this happening? And what does it mean for you? Read on to find out all the answers!

Auto-Enrolment first began in 2012, but was originally only applied to large businesses. It was brought in by the Government as they believed that not enough people were saving money for their retirement. This, alongside the rising average life expectancy and uncertainty over whether State Pension levels could feasibly be retained, led the Government to decree that all employers must automatically pay into their worker’s pension pot.

Whilst large businesses have been automatically enrolling their employees since 2012, small and medium-sized companies have only been required to since 1st October this year. Therefore, any business that employs staff is now legally obliged to be signed up to auto-enrolment.

Auto-enrolment applies to any employee who works in the UK, is aged between 22 and the state pension age and earns more than £10,000 a year.

The amount that companies have to pay into the pension scheme is worked out as a percentage of your pay check, and will rise over the next couple of years. The current minimum pension contribution for employers is 1%, however this will increase to 2% from 6th April 2018 and the contribution from employees will also rise, 1% to 3%. All in all, this means that from April onwards there will be an overall contribution of 5% of your wage into your workers’ pension scheme.

From the 6th April 2019, the contributions will rise again. As an employee, your contribution will rise to 5% with your employer’s contribution rising to 3%. It is important to point out, however, that part of your employee contribution comes through Government tax relief!

So if you notice a slightly smaller amount in your pay check this month, this is likely the reason. But remember, it’s still your money – it’s just being stored away for the future!

You may not be eligible for auto-enrolment, either. If you earn less than £10,000 per year, your employer will not automatically enroll you onto a pension scheme. However, you can ask to join it! If this is the case and you do choose to join, your employer will still have to make a contribution if you’re earning over £5,876 each year. If you are earning less than this, there is no responsibility on your employer to contribute.

You may be reading this and thinking to yourself that you don’t want to be enrolled on a pension scheme. That’s absolutely fine, all you need to do is ask the people who run your workplace pension scheme for an opt-out form. Complete this and return it to your employer (not the people who run the scheme!) and you will be opted out.

Hopefully this blog explains the new scheme for you, but if you need any more information it can be found via The Pensions Regulator website.





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