Workplace pensions - what’s changed?
To make it easier to save for retirement, the government introduced auto-enrolment. This means Employers need to provide a workplace pension scheme and make payments for certain employees.
There are more of us in retirement
The good news is that we're living longer – that means we will be spending more time in retirement. But the bad news is that there'll be fewer people of working age paying into the State Pension system.
In 1901 the ratio of workers to pensioners was 10:1, in 2005 it was 4:1. By 2050 it's estimated that there will be just two workers to every pensioner. It will become harder for the state to support us when we retire – so we'll need to save more ourselves.
Many of us aren't saving for retirement
Many of us put off starting a pension, or feel we can't afford one. Overall, only 49% of us are saving for retirement, and only 50% of us who have a company pension scheme choose to join. Statistics are prior to the government launching auto-enrolment.
Employers must provide and pay into a pension for you
To make it easier to save for retirement, the law is changing so that all employers will have to provide a workplace pension – and contribute to it. If you're not already in a workplace scheme and you're eligible, you'll automatically be enrolled in one. This is called auto-enrolment, and it was introduced in 2012.
To help everyone adjust, the new regulations are being phased in gradually. This started in 2012 with very large employers. Others will follow in stages to at least 2018.
You'll be eligible for auto-enrolment if you're:
- not already part of a company scheme that meets the government standards
- at least 22 years old but below State Pension age
- earning more than £10,000 a year – or the monthly or weekly equivalent, depending on how you're paid
- working in the UK.
Even if you aren't eligible, check with your employer as you might still be able to join.
If you decide you don't want to be part of your workplace scheme you can choose to opt out, but you can re-join in the future if you want to.
If you've opted out, your employer will enrol you back into the scheme roughly every three years if you're still eligible. This gives you a regular opportunity to reassess your situation.
The government has set minimum levels for the total amount that is paid into a workplace pension – although your employer may set higher contribution levels.
This amount is calculated as a percentage of your qualifying earnings – starting at 2% in 2012, rising to 5% in 2017, and 8% in 2018.
One of the benefits of the new regulations is that your employer has to contribute to your pension.
The minimum starts at 1% of your qualifying earnings and rises in stages to 3% by 2018.
This contribution comes directly from your employer and is over and above your take home pay.
You may also have to pay in
To qualify for a pension contribution from your employer you may have to pay in too. This might just be the amount needed to top up your employer's contributions to the minimum total amount, or your employer could set a higher amount.
However, your employer could choose to pay more than the minimum contribution or even the whole cost.
But if you're serious about planning for life after you stop work, you could always choose to pay in more.
You get tax relief on every payment
Remember, you can usually get tax relief on every payment you make. Laws and tax rules, though, can change in the future.
Each employer has a date when they have to begin enrolling people automatically; your employer will write to you in advance about how exactly the process will be introduced in your workplace.
So to sum up:
- Auto-enrolment is being phased in over several years
- Minimum contribution levels are set by the government - these will increase over time
- You can opt out of the scheme or re-join in the future if you want to.
We all need to save more for retirement – the good news is that auto-enrolment will make it easier.
Take control of your financial future. Find out about your options and what you can do with your company pension.
Independent Governance Committee | Protecting the interests of workplace scheme members