In October 2012 the government introduced an initiative which makes it compulsory for employers to auto-enrol their eligible employees into a workplace pension scheme. The date by which employers have to start doing this depends on how many employees they have and when they started their business.
The reason for introducing this was to ensure that more people save for retirement. Auto-enrolment makes it easier for you to have a pension because your employer now has to offer you one and there are no lengthy applications for you to go through.
Both you and your employer contribute to your pension each month and this is deducted straight from your wage. The minimum amount an employer can contribute is 1% of your salary. You will be automatically enrolled in a scheme if you work in the UK, earn over £10,000 per year and are between 22 years old and state retirement age.
If you do not fit these criteria you may still ask to opt in to the scheme. Your employer cannot refuse you joining the scheme but they do not have to contribute if you earn under a certain amount.
By law your employer must provide you with information of the scheme. If you have not received this information then you should speak to your employer immediately so you understand what pension scheme you have been enrolled in.
In some cases your employer may enlist financial advisers to give you the information and answer your questions. It is worth remembering that these advisers are acting in the interests of the employer; you may prefer to seek independent advice yourself.
You do have the option to opt out of the pension scheme but the employer has a responsibility to let you re-join once a year. You can only opt out once you are auto-enrolled, except in special circumstances.
Opting out is not usually beneficial as you will lose out on the employer contribution to your pension and the tax relief. However, there are some circumstances where opting out may be a good option. If you have problem debt then you may decide that this takes priority over paying into your pension until you have cleared the debt. If you are nearing retirement and already have a good pension then you may decide the money would be better taken as salary. If you are nearing the lifetime allowance threshold then opting out would prevent you from exceeding this and being subject to the tax implications. If you are considering opting out of a scheme then you should seek professional advice to make sure that it is the best decision for you.
Employers now have more responsibility when it comes to pensions and they must adhere to these. An employer must not encourage you to opt out or suggest there will be any kind of discrimination, dismissal or bias against those who remain in the scheme. They cannot close a workplace pension scheme without setting up another one.
If you have any concerns about the scheme your employer has chosen, or are worried they have not enrolled you and should have, then you should seek advice. Equally you should seek advice if you have not received any information, have been coerced into opting out or your employer is not making contributions on your behalf.
Workplace pensions will help you save for retirement. However, making only the minimum contributions may not be enough to enable you to have the lifestyle you want when you retire. If you are concerned that you won’t build up a pension large enough for your needs, then you should speak to an independent financial adviser about your options.
At Rockwood we’re passionate about pensions and can help you understand what your options are. Whether you have one or several pensions we can review them for you and explain the advantages and disadvantages of consolidation. If you do decide to switch or consolidate we can help you chose the pension scheme that is right for you. This will be based on your circumstances now and the lifestyle you want to achieve in the future. All of our advice is completely impartial. If you’d like advice on existing pensions or setting up a new pension then we’d love to help. Contact us today to start making the most out of your pensions now.
Nothing in this blog constitutes financial advice or recommendations, for more information please contact Rockwood Financial Solutions on 0330 332 2679.