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Changes to Personal & Company Pensions

Company changes due to the auto-enrolment system.

What is auto-enrolment?

The government set up the auto-enrolment pension system to give as many people as possible access to a workplace pension. It began in October 2012, and is gradually being rolled out over the next five years, starting with the biggest employers first.

You’ll be automatically enrolled in your employer’s pension scheme if:

  • You’re at least 22 years old.
  • You’re below state pension age.
  • You earn more than £9,440 a year. (This figure is reviewed every year.)
  • You’re not already part of a company pension scheme.
  • You work in the UK.

You can choose to opt out of your employer’s scheme if you want to, but think very carefully before you do this, as you will miss out on any employer contributions. If you decide not to join, employers have to repeat the process of signing you up every three years.

What sort of pension will you be enrolled in?

Your company is likely to offer you what is known as a ‘defined contribution’ pension scheme, whereby the money you pay in from your salary is invested by a pension provider, chosen by your employer.
The amount you’ll get when you retire will depend on how much you’ve paid in, how long you paid in for and how well the investments have done.

Remember that returns are not guaranteed, so the value of your pension can go both up and down over time.
A small number of companies offer defined benefit schemes, although these are rarely open to new joiners as they have proved too expensive to provide. However, if your company does offer this kind of scheme you should sign up as soon as you can, as it will guarantee you a certain amount each year when you retire.

How much do I have to contribute under the auto-enrolment scheme?

The minimum amount you have to pay in is worked out as a percentage of your income before tax. From October 2012 up to September 2017, you have to pay in 1% of your income, which is matched by another 1% from your employer, so 2% in total. By October 2018, you’ll have to pay in 4%, and your employer will pay in 3%, with the Government paying a further 1% in tax relief.

What if I already pay into a company scheme?

Then you probably won’t see any change, unless your employer contributions are less than the minimum, which means you should get more once you are eligible for auto-enrolment.

Contact us to find out more