About Workplace Pensions
The government has introduced legislation designed to help people save more for their retirement. It requires all employers to enrol their workers into a workplace pension scheme, if they are not already in a qualifying one.
What is a workplace pension?
A workplace pension is a way for workers to save for their retirement, which has been arranged through their employer. It is sometimes known as a ‘company pension’, ‘occupational pension’, ‘auto-enrolment’ or ‘works pension’.
Why has this been introduced?
Whilst the life expectancy in the UK is increasing, millions of people are not saving enough to have the income they are likely to want in retirement.
When will this happen?
The timing of when employers will automatically enrol workers depends on their size. The Pensions Regulator will notify employers of the exact date. Very large employers were affected first, which started in October 2012. If you would like to know your exact date, please contact us with a note of your PAYE reference number.
Who will be automatically enrolled into a workplace pension scheme?
Workers are being automatically enrolled into a workplace pension scheme by their employer if they:
- Are aged 22 or over
- Are under State Pension age
- Earn more than £10,000 a year (this figure may change)
- Work, or usually work, in the UK
Workers can choose to opt out of the pension scheme if they want to, but if they stay in, their employer will contribute to their pension, and they will get some tax relief. Anyone who opts out, or stops making payments into their pension, will be automatically enrolled back in at regular intervals. They can opt out again if they want to.
Benefits of Workplace Pension for Workers
The above illustration is based on a worker receiving a monthly pensionable pay of £1,500; a 4% contribution from the worker; a 3% contribution from the employer and 1% in tax relief.
Important: The government has set minimum levels for what has to be paid in by the employer.
Myth:“Starting from October 2012 every worker will be forced to save in a workplace pension scheme whether they want to or not”
Reality:Workers can opt out if pension saving is not right for them. If they opt out within a month of the day they officially became a member of the scheme, they will get back any contributions they have made during this time. Workers who have opted out can re-join at a later date if they wish. Employers must automatically enrol workers back into their scheme every three years.
Myth: “Workers who are under 22 years of age or over State Pension age cannot join a workplace pension scheme”
Reality: Workers who are aged 16 – 21, between state pension age and age 74, with earnings above £5824 up to £10,000, can choose to join the scheme and if they do their employer will need to make contributions on their behalf. Workers aged 16 – 21, between state pension age and age 74, with earnings of £5824 or less can choose to join the scheme, but the employer does not need to make any contributions. All employee contributions will receive tax relief.
Myth: “Employers do not have to automatically enrol workers into a workplace pension scheme if they do not want to”
Reality: All employers must comply with the legislation. Automatic enrolment started to be rolled out in October 2012 (starting with the largest employers). Employers must not:
- discriminate in favour of job applicants who indicate they are prepared to opt out;
- encourage workers to opt out of a qualifying pension scheme; or
- treat a worker unfairly or put them at a disadvantage because of automatic enrolment
Myth: “Only employers with five or more workers will have to automatically enrol their workers into a workplace pension scheme”
Reality: Starting from October 2012 all employers (with one worker or more) will have to comply with the law and automatically enrol all workers into a qualifying workplace pension scheme.
Ask your specialist for advice.
Independent Financial Adviser
Tel: 01480 869466