Auto-enrolment starts today (1 October 2012), marking the biggest change in pensions for over 100 years. Companies with more than 250 employees will enrol their staff into workplace pensions first, followed by businesses with between 50 and 249 employees in 2014.
Steve Webb, Minister for Pensions, says: ‘If we can get between six and nine million more people saving in a pensions by the time all employers are in, that’s a genuine savings revolution.’ The government hopes to have 600,000 more people saving into a workplace pension by the end of the year.
UK not saving enough for retirement
Currently, around 11 million people aren’t saving enough to have a comfortable retirement, and fewer than one in three adults are contributing to a pension – and all this while life expectancy is increasing. In the past 25 years, it has gone up by five years for men and three years for women.
Most people in the UK will be eligible for auto-enrolment. You will be automatically enrolled if:
- you aren’t already in a workplace pension scheme
- you’re at least 22 years old
- you earn more than £7,475 a year
- you’re under State Pension Age
Evidence from the Department for Work and Pensions suggests that once people are enrolled in a workplace scheme, less than a third will opt out. In the US and Australia, similar schemes have been very successful.
How will auto-enrolment work?
Minimum contributions from the employer will start at 1%, and minimum contributions from the employee will start at 0.8%. By 2018, the total minimum contribution will be 8%, with 3% from employer and 4% from employee, with the remaining 1% made up by tax relief by the government.
The government has created a new defined-contribution pension scheme called the National Employment Savings Trust (Nest). You’ll be enrolled into Nest if your employer doesn’t have an existing pension scheme or decides not to use a pension scheme from a provider. Our guide, Auto-enrolment and Nest, explains it all.
You can opt out of auto-enrolment, but you won’t benefit from your employer’s contribution or the tax relief from the government. If you opt out during the first month of membership, any payments you made will be refunded to you.
- Do you think auto-enrolment is a good thing? Have your say on auto-enrolment on Which? Conversation.
Which? welcomes auto-enrolment
‘One of the most important things people need to do is save for their retirement and that every penny counts.
‘The government needs to make sure that the public are fully aware of auto enrolment, but also that all pensions schemes are of a high quality with clearly defined minimum standards to protect consumers from being automatically enrolled into poor value schemes. Consumers must also be protected from excessive transfer fees when they move to another job.’