Company pensions explained Auto-enrolment and NEST
In October 2012, the government introduced new rules to encourage more people to save for retirement.
This process is called auto-enrolment. It means that you will be automatically placed into your company's pension scheme.
This guide explains the basics of how it works.
Auto-enrolment - the basics
Since 2012, employers have been obliged to offer a qualifying pension scheme to their employees.
All workers who earn above a certain amount (£10,000 a year in 2016/17) are automatically enrolled into a pension scheme.
If they work for a large employer, this will have happened in October 2012. For those working for medium and small companies, all staff must be enrolled into a pension by 2016.
You can ‘opt out’ and leave the scheme, but only after they have been automatically made a member.
Go further: Pensions auto-enrolment explained - find out more about the new rules in our dedicated guide.
How much do I contribute?
The minimum amount you and your employer have to contribute under auto enrolment will gradually increase between 2012 and 2018. It is a percentage of 'qualifying earnings' (between £5,824 and £43,000 in 2016/17).
- From 2012 to 2017, employees contribute 0.8% plus 0.2% tax relief, employers 1% (overall minimum is 2%)
- From 2017 to 2018, employees contribute 2.4% plus 0.6% tax relief, employers 2% (overall minimum is 5%)
- From 2018 onwards, employees contribute 4% plus 1% tax relief, employers 3% (overall minimum is 8%)
Many existing occupational schemes and company sponsored group personal pensions already qualify, but will be extended to take in a greater proportion of the workforce. Employers without a scheme can set up one of their own or enrol their workforce into the National Employment Savings Trust (NEST).
National Employment Savings Trust (NEST)
NEST is an independently-run defined contribution (DC) pension scheme, specifically designed for low-to-moderate earners and those whose employer has no existing scheme. It will also be open to the self employed who wish to set up a personal pension.
- NEST members will be restricted to an annual contribution limit of £4,700. This is the combined total from the member, their employer and the government (via tax relief). The minimum employer contribution will be 3% of qualifying earnings in 2018.
- NEST charges for members have been set at a 0.3% annual management charge and an initial 1.8% charge on contributions. For most people, these will be lower than existing DC schemes, which typically charge an annual management charge of 1%.
- NEST investment choices will be limited to a five default funds and an ethical fund. They incorporate lifestyling, to reduce risk as a member nears retirement.
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