Have you heard the terms ‘workplace pension’ and ‘auto enrolment’ being mentioned recently? You may have also seen television and newspaper adverts on the subject, so we thought we’d give you a brief rundown on just what it all means.
So what is this all about?
The Government are aware that not everybody saves money whilst they are working to help them pay for things when they stop. Whilst we should all get something from the state when we retire, this is usually not enough for us to live on comfortably. With people now generally living for longer and therefore spending a greater amount of time in retirement, it is important that everyone saves enough money now to help pay for the things they will need later in life. The Government has introduced some new laws to help tackle this issue and part of this law means that many UK workers will be automatically enrolled into a workplace pension.
When exactly will this happen?
The Government gives every company a different date to comply with the new laws – they call it the ‘staging date’. This simply means that, if you are an employer, you are required to follow these laws and take certain actions. The result of these actions means that you may have to be automatically enrolled into the pension scheme.
Who does this affect?
Not everybody has to be automatically enrolled into a pension scheme. Whether you are enrolled or not will depend on the amount of your earnings – either each week or each month, depending on how often you are paid. You will get a letter from your employer nearer the time which tells you if and when it will affect you, but if you are over the age of 22 and earn enough, you will be automatically enrolled.
What will happen if I earn enough to be automatically enrolled?
There are a couple of things that could happen, depending on which ‘group’ of worker you fall under. Here is a bit more detail:
Existing pension scheme members:
Nothing will really change for you as you have already joined your workplace pension scheme. Your employer will still write to you and tell you about this as they have to by law, but in most cases it won’t mean anything will change. For some of you, it might mean that your payments will go up, as there are minimum amounts that should be paid in. If you don’t want this to happen, then more information is given under the section titled ‘What if I don’t want to stay in the pension scheme?’
Workers who are not already in the pension scheme:
Your employer is required by law to automatically enrol many of its workers into the pension scheme. This simply means that if you are not in the pension scheme already then they may have to make you a member. If they do, then they also have to make a contribution for you which they will pay for. It also means that they take some money from your pay and contribute this into the pension on your behalf. When you contribute into the pension from your own pay, you will also get a contribution from the Government to top this up. You will only be automatically enrolled if your earnings are above a certain level and you will be written to if this is the case. You will be known as an ‘eligible jobholder’ if this applies to you.
What if I’m not automatically enrolled?
You don’t have to do anything. You may not have been automatically enrolled because of your age or the amount of money that you earn. This could change in the future and you will have to keep an eye on this to see if it does. If you have to be automatically enrolled at some point in the future, then your employer will write to you again separately and tell you.
You can also choose to join the pension scheme at anytime and you will just need to contact your HR department. If you pay into the pension yourself then the Government will top this up for you and, in some cases, your employer might pay in too, but it will depend on how much you earn.
What if I don’t want to stay in the pension scheme?
This will depend on how you joined the pension scheme in the first place.
If you were automatically enrolled into the pension scheme then you have a time period of 1 month where you can choose to leave. Leaving the pension in this way is called ‘opting-out’ and it will undo the whole process, so it’s as if you were never a member in the first place. This means that you will be given back the amount of money that was taken from your pay and paid into the pension. You don’t, however, get any of the money that your employer has paid in for you or the top-up payment from the Government.
If you miss the 1 month time limit, or you were already in the pension scheme on 1st February, then you can still leave the pension scheme at any time. You won’t get a refund of the money that you paid in to the pension and this will have to stay there until you retire.
If you make the decision yourself to join the pension scheme and then later change your mind, you may not get your payment refunded to you – this will stay in the pension scheme until you retire.
What if I want to stay in the pension but pay in a different amount?
Your employer may be required by law to automatically enrol you and to pay a minimum amount into the pension; some from you and some from them. If you decide you want to pay in a bit more, or even a bit less, then you can request this by contacting your HR department.
What else do I need to know?
If you are automatically enrolled into the pension scheme then you will be sent some information in the post from the company that looks after your pension. The money that is paid into the pension scheme (from your employer, the Government and from you) will be invested on your behalf. Details of where the money is invested will be sent out to you in the post by your scheme provider (either AEGON or NEST). You can make changes to this if you want to by contacting your scheme provider directly.
If you are not automatically enrolled and you would like to find out more about the pension, you can contact your scheme provider on the following numbers:
AEGON – 0845 610 0088
NEST – 0300 020 0090
Who can I speak to if I still have questions?
Hopefully the information that you get from your pension scheme provider will be enough for you to understand the pension and to make a decision that suits you best. You may decide that you want to take some financial advice and, if you do, then it’s important that you choose someone who is qualified to help you. The following website might be a good place to start: www.unbiased.co.uk
Key points that you should consider:
• You could have 20 years of retirement – the average life expectancy is increasing, and living longer means a longer retirement to fund.
• The state pension is a foundation for your retirement, but you may want a bit more.
• Starting sooner means your pension will be bigger – the earlier you start, the more time your money has to grow.
• Starting sooner makes saving more manageable – saving smaller amounts over a longer time period has less impact on your current lifestyle.
• If your employer is required to automatically enrol you into the pension scheme, it’s a hassle free way of saving while you earn.
• When you pay into your pension, your employer might pay in as well and the Government will too.
• Saving into a workplace pension means you can continue to enjoy the things you like when you retire.
• Even if you’re not being automatically enrolled into the pension scheme, you can still ask to join. You might also get a contribution from your employer and the top-up from the Government too.
• More information is available now if you want to read about the subject. Just follow this link: www.gov.uk/workplace-pensions
The Government has come up with a whole new language when they talk about the subject of workplace pensions. You will see some of these new words appear in the press and also in the communications that you receive from AEGON. Here is a list of the most commonly used words and phrases:
• Automatic Enrolment: this is the term used for your employer enrolling you into the pension scheme without them asking if you want to join (they have to do this by the way, is it’s the law.)
• Default Fund: the money that is paid into the pension scheme has to be invested somewhere. It will automatically be placed into the ‘default fund’ for you, but you can change this later if you want to
• Deferred Period: officially called ‘Postponement’. This is a time period of up to 3 months from the Staging Date or first day of starting work – whichever is later.
• Eligible Jobholder: this is the name given to workers aged between 22 and State Pension Age, ordinarily working in the UK and earning above the £9,440 a year.
• Entitled Worker: this describes workers aged between 16 and 75, ordinarily working in the UK, but whose earnings are below £5,668. If you are in this group then you can still join the pension scheme if you want to. The Government will pay in to your pension too, but your employer will not.
• Non-eligible Jobholder: this is the name given to workers who are aged between 16 and 75 whose Qualifying Earnings are between £5,668 and £9,440, OR those workers aged between 16 and 22 or State Pension Age and 75. If you are a non-eligible jobholder then you can Opt-in to the pension scheme if you want to. The Government and your employer will contribute too.
• Opt-in: the name given to the process of a Non-eligible Jobholder who chooses to join the pension scheme.
• Opt-out: the process where a worker who has been automatically enrolled chooses to stop contributing within a given time. Employees who Opt-in can also Opt-out.
• Pay Reference Period: the period over which you are paid, such as weekly or monthly.
• Pensionable Pay: the term used to describe the part of your total pay that is used for pension calculations. This includes basic salary and may or may not include commission and bonuses.
• Postponement: see Deferred Period.
• Qualifying Pension Scheme: a pension scheme that meets the new criteria set out by Government.
• Qualifying Earnings: the earnings used to decide whether a worker should be automatically enrolled or not. This includes salary, commission, bonuses, overtime, statutory sick pay, maternity pay, paternity pay and adoption pay.
• Staging Date: the date that your employer is required to comply with the new laws.
So there you have it – our super simple guide to pensions & auto-enrolment and how it will affect you. If you have any questions, as ever, please feel free to leave a comment or reach out to us: