Get ready for compulsory pensions
Are you prepared for the start of auto-enrolment in October, asks Julian Knight
Sunday 29 July 2012
You open your payslip and your salary is less than usual, quite a bit less. This could be you come October when 10 million employees not currently in a workplace pension scheme will be auto enrolled into one.
"Public inertia at the moment works against pension saving with millions failing to join their company pension scheme. But the idea of auto enrolment is to make that inertia actually work in favour of pension saving, so if you do nothing you will start to pay into a workplace scheme of some description," explains David James, an associate at Sackers, the pension's law firm.
Not everyone is going to be immediately auto-enrolled. The biggest employers, best able to cope, are moving first. Between October and February 2014, employers with more than 250 staff will have to auto-enrol. Then in April 2014 to February 2018 smaller employers will follow suit.
If the employer doesn't offer a pension scheme of its own it will have to start enrolling into a third party scheme, the most likely is the government-run Nest but there are private sector alternatives such as NOW: Pensions. It is up to the employer to select which scheme is offered to their employees.
Eventually micro-employers will have to enrol their staff into a pension scheme. The only group to be exempt from this pensions revolution will be the self employed: "A lot of people haven't woken up yet to how many people are going to be impacted by this. If someone is an employee they will find themselves auto-enrolled but if they have, say, a full-time nanny at home, who is over the age of 22 and earns above £8,105 a year, they will have to act as the employer and auto enrol them into a scheme," Mr James adds.
The level of pensions contributions that employees will make depends on the scheme rules. Some schemes insist on staff making quite substantial contributions. There will though, from October, be a minimum standard with, initially, employees contributing 0.8 per cent of salary (rising in 2018 to 4 per cent), employers 1 per cent (rising in 2018 to 3 per cent) and tax relief accounting for another 0.2 per cent (rising to 1 per cent in 2018).
But experts say that although most would be best going with the flow of auto-enrolment some should opt-out at the earliest opportunity, preferably within a month. And it seems these groups come from diverse parts of the earnings spectrum.
"People with expensive debt that needs paying off, for example those who are relying on payday loans or credit cards to survive, may be best getting this in order first. Likewise, people close to retirement who might qualify for means tested benefits – a small pension could push someone over the threshold for a means-tested benefit, but that benefit may be more valuable than the additional pension," says Julian Webb, the head of pensions at fund manager Fidelity.
But Mr Webb adds: "As a general rule, we would say that individuals should think carefully before opting out, not only because they will be giving up free money [employer contributions and tax relief from the government] but also because people are living longer and their retirement income needs are growing, so it is more important than ever to start saving or continue to save for retirement."
Those with very large pension pots – approaching the lifetime limit of £1.5m – should also tread very carefully over auto-enrolment: "If auto-enrolment means they breach this lifetime limit then there could be severe tax consequences. These people are best taking advice and probably opting out within a month."
A larger group of people will be in the middle ground, where opting out is not such an easy decision. For example, someone nearing retirement may find the pension accrued useful but may find that paying down outstanding mortgage debt is even more valuable in the long term. However, there are no hard and fast rules and Logan Anderson from The Pensions Trust says that it's too easy to overstate the numbers who would be best opting out of auto enrolment:
"Just about no one should look to opt-out of auto-enrolment. The reason for this is that the Government is also taking steps to bring in a universal pension, above the level of means-tested benefits, which means that employees on low incomes are no longer penalised for any pensions savings that they've accrued.
"So, any contributions made by employers are, in effect, free pay (albeit deferred to retirement age). Added to this is the fact that employees' own contributions are tax deductible – there is arguably an additional benefit in contributing."
What if I don't want to join?
You can opt out but will lose the employer's contribution. To encourage pension saving employers must re-enrol those who have opted out every three years.
It is compulsory for every worker aged between 22 and state pension age and earning more than £8,105 (for 2012/13). But people who are not in this group can opt in.
How many will be auto-enrolled?
Ministers say up to 10 million people, with up to eight million people newly saving or saving more in all forms of workplace scheme.
Fuel poverty could kill 100,000 vulnerable people over the next 15 years, charity warns
Phoenix Life: Chance of a refund for overcharged policyholders has risen
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Simon Read: That's right, BT, they'd rather pay for a free service
Bank-beating exchange rates on your international payments
- 1 Forget 'The Dress': Here are five of the biggest news stories you might have missed
- 2 The black and blue dress: Makers considering a white and gold version
- 3 PornHub turns masturbation into energy in bid to save the planet
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 Saudi Muslim cleric claims the Earth is 'stationary' and the sun rotates around it
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads