What is auto-enrolment?
New rules to resolve the pensions’ crisis could have a major impact following the introduction of reforms in October 2012. The Government has compelled employers (who do not already offer a qualifying scheme) to enrol their workers automatically into a workplace pension to encourage people to save and not rely solely on the State.
Workers are automatically joined (although they can elect to opt-out) and pay into their employer's staff pension schemes; the employer will also contribute along with the Government by way of tax relief on employees’ contributions. Employee contributions are collected by the employer through the payroll system.
It is all designed to reinvigorate pension saving in the UK, create a simpler system to help people make better informed decisions about how much they need to save privately, and make it easier for them to plan for their retirement.
How is auto-enrolment implemented?
Starting with the largest employers in October 2012, other employers must comply by 2016/17.
Employers have to choose a pension scheme, perhaps an existing one or a scheme set up with a pension provider. Information from the Pension Regulator is now available to help companies make this decision. However, a proper strategy is essential as employers need to be mindful too of the requirements and restrictions of the Financial Services Act.
For employees, it is important to remember that life in retirement is going to be very different from your working one, both personally and financially. Retirement is like a holiday – but every one of your retirement years has to be paid for. That is why it is essential to seek professional advice and start planning for retirement now, whatever your age.
For more information, read our ‘Gearing up for auto-enrolment’ editorial