For years industry experts have been holding their metaphorical public pension banners, decrying the fact that the End will soon be nigh for the government pension pot, and foretelling of potentially Armageddon like doom. Of course private pensions have always been available, but without forcing employees into such schemes uptake levels were either low, or slow – with many taking out pensions a little too late in life.
As an answer to this, the Government have introduced a fresh faced scheme, but beyond the slogan of “when you pay in, your boss does too” and way past that purple Workplace Pensions Monster that has been gracing our TVs, how much do you really know about the scheme? And moreover, how can you make the most of it?
Everything you need to know about Auto enrolment
As of 2012 a law was introduced for employers to provide a workplace pension scheme and to automatically enrol eligible employees onto it. The scheme has been in place since October 2012 for the larger of businesses, and will eventually apply to all employers by the year 2018.
You will be informed of the minimum total amount that you need to contribute by your employer (although workers can opt out if they wish), currently the minimum contribution is set at 2% of your earnings (this consists of 0.8% contributed by you, 1% contributed by your employer and 0.2% provided in the form of tax relief). These amounts will increase in 2017, and again in 2018.
You can gain a pretty spot on contributions estimate by using the Money Advice Service’s calculator; or alternatively you should gain Auto enrolment advice from your workplace pension advisor.
Each Auto enrolment employer will choose the pensions provider, who in turn will choose a default scheme onto which employees are enrolled.
3 steps for maximising your workplace pension pot
- Contribute as much as you can
Due to the setup of the workplace pension you’re in the nice position of having your pension pot boosted by both your employer, as well as the government, so pay in as much as you’re comfortably able to.
- Be savvy about your investment options
Whilst your employer will choose your pension provider, you are able to choose from a range of funds to invest within, so explore this option if you wish. The chances are, however, that as an Auto-enrol employer that you’ll likely be with companies such as Aviva, Scottish Widows or Standard Life, or with the government-run National Employment Savings Trust (known as Nest).
- Be sure to keep an eye on performance
Being in the know when it comes to pensions is pretty important, as highlighted by the all-too common stories about workers who faced a black hole, rather than a nice little nest egg for their autumn years. So be sure to continually assess your pension, and check whether it’s living up to the foreseen returns that were spoken about when you signed up.
You’ll receive an annual statement each year of your pension savings, which will additionally tell you how much you’ve contributed and how much your employer has contributed, as well as how your pension investments have performed. If you have any concerns then you should raise these, initially, with your employer. Beyond this you may then want to seek out dependent professional advice.
If you would like to review all of your current pension plans, our retirement planning team will be happy to help.
The financial conduct authority does not regulate wills, taxation and trust advice. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.