Some help with Auto Enrolment
Workplace Pensions: Setting Aside for a Better Future
Under government law, employers are now required to enrol all appropriate members of their workforce into a Qualifying Workplace Pension Scheme, giving many UK employees access to a workplace pension for the first time.
This is good news for employees who often plan to rely solely on the Basic State Pension when retiring. This is a common path which the government is trying to discourage since the planned rate of £144 per week set for the 2016/17 tax year is simply insufficient for many people to live off of, indicating that setting aside for the future is vital.
Dependent upon age and earnings, employees will be automatically enrolled (with the option to refuse), while others will be required to request inclusion into the scheme. Opting into the scheme means retirees will be able to supplement their Basic State Pension, giving them additional income after leaving work.
Those eligible will be required to contribute a minimum of two per cent of their basic salary. In addition, employers may also be required to contribute to their employees’ pension schemes, subject to the employee’s age and earnings.
Those between the age of 22 and the national State Pension Age, with earnings over £10,000, will be enrolled automatically and will therefore receive employer contributions to their retirement funds if they do not opt out of the pension scheme.
The minimum two per cent employee contribution will, in time, rise to three per cent, and eventually to a minimum contribution of five per cent of basic salary, while the employer contributions will rise to a minimum of four per cent in turn.
In addition to employer contributions, the government will also add in a little tax relief, which will be claimed on behalf of the employee, or during self-assessment in other cases.
Although ill-advised, those who do not wish to contribute the small percentage of their earnings can opt out of the workplace pension scheme, but they would also then miss out on the employer contributions and tax relief.
If employees do decide to opt out, then the employer will be obliged to re-enrol them after three years. Should the employee still not wish to take part in the pension scheme, then they can once again opt out.
The government is encouraging the move for more employees to invest in their retirement funds since the state pension amount is unlikely to allow many to live comfortably. Investing in their futures means more chance of a better standard of living after retirement age.