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Pensions: what you need to know about auto-enrolment

The government wants us save more for retirement which is why it's forcing everyone into workplace pensions; but what does it mean for you?

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by Michelle McGagh on Jul 20, 2012 at 11:54

Pensions: what you need to know about auto-enrolment

'Auto-enrolment' may not mean much to you now, but come October you won’t be able to escape this huge pensions shake-up.

The term auto-enrolment refers to the government’s plan to force employees in the UK to save for their retirement. Here’s how it will work.

What does auto-enrolment mean?

If you are aged between 22 and state pension age, do not currently pay into a qualifying workplace pension and earn more than £8,105 then you will be automatically enrolled into a scheme.

Auto-enrolment does not apply to the self-employed.

When will I be auto-enrolled?

It will depend on the size of the company you work for. Large companies with 250 qualifying employees or more have to have auto-enrolment in place by 1 October 2012.

Firms with between 50 and 249 staff must implement the scheme between 1 April 2014 and 1 April 2015, those with 30 to 49 staff between 1 August 2015 and 1 October 2015, and those with fewer than 30 staff must have auto-enrolment in place between 1 January 2016 and 1 April 2017.

By April 2017 the government is expecting around 10 million workers who weren’t saving into a pension to be auto-enrolled.

New firms that started trading between April 2012 and September 2017 will have start dates ranging from 1 May 2017 and 1 February 2018, and companies that launch from October 2017 will have to have auto-enrolment in place immediately.

What if I don’t want to save into the company pension?

If you don’t want to save into the company pension scheme – maybe you already pay into a private pension or you feel that you can’t afford to pay into one – then you can opt out of the scheme. Every three years the government will auto-enrol you back into the scheme, and you will have to continue opting out.

The government hopes that if it puts you into a pension and continues to keep putting you into one then inertia will keep you in the scheme, and you will start saving for your old age.

I want to save. How much can I put in?

If you want to stay in the pension then you’ll reap the financial benefit. At first you will only save 1% of your salary that falls between £5,564 and £42,475.

Your employer will match this 1% contribution, giving you double the contributions. Then the government will add some more on top in the form of tax relief, bumping your total contribution up by a further 25% (if you’re a basic-rate taxpayer).

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24 comments so far. Why not have your say?

Tony Peterson

Jul 20, 2012 at 13:10

So much for the myth that we live in a free society.

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Rose G

Jul 20, 2012 at 14:04

If you believe the twaddle this government comes up with, then on your own head be it!

We are being hounded left, right & centre to save up for a pension, just so that the government can fcuk you over whenever their coffers are empty - I will be advising my 2 children to give the 2 fingered salute to this golden opportunity.

Can the government who are so good at directing our actions, if only we would listen.

Bunch of twats if you ask me - I may offend and sorry for my language, but quite frankly, if I was the violent type, I would certainly do something about the fcukers who want to control how I live, and where I live, and what I eat, what drugs I can legally take. Free society, only in your dreams!

They may not bring out the loaded cannons into view, but be sure it is there nevertheless!

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PensionMan

Jul 20, 2012 at 16:25

Rose G

Are you having a bad day as I note posts on other forums where you are getting a bit excitable! :)

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Chris Powell

Jul 20, 2012 at 17:24

We should make people save more in all forms and we should make it compulsory for people to insure against unemployment. We should stop all unemployment benefit and stop all tax credits. We should only have Pensions, Invalidity Benefit and Child benefit and these should be high enough for the them to meet the bare minimum- all other benefits should stop even housing benefit. It is the best way to make things simple and stop people who do not save benefiting too much and people who can work but don’t work enough from benefiting. Anyone who complains send them to Greece!

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john brace

Jul 20, 2012 at 17:41

why would anyone with half a brain start saving into a pension now?

Even with the best incentives, at the end you're stuck with a tiny Annuity, which is taxed, and if you die after a few years it is all lost.

I agree that everyone should have to save from their earnings what is wrong with a compulsary ISA from which you can't draw until retirement but with no annuitiy.

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Tortoise

Jul 21, 2012 at 11:57

Rose G is absolutely right. The government will be the long term winners in this simply because they tax pensions as income rather than as a return of your own money. Not only that, they use this "income" to push you over the threshold for other benefits, allowances etc such as the pensioners minimum income guarantee. Will they change the way pensions are taxed?? I doubt it.

Also agree with Mr Brace in that annuities should be scrapped. They are the biggest dis-incentive to saving in a pension.

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Dylantherabbit via mobile

Jul 22, 2012 at 20:43

1.8% charge on contributions.. Not exactly cheap. With the scale involved the charges should be similar to Vanguard funds. 0.3% is only in line with most tracker funds. What's the advantage here?

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Dek

Sep 11, 2012 at 11:16

Please step back and think about the context using t a pension vehicle for saving for your retirement today.

Yes, those of you who have identified correctly that the Government is trying to ensure you save for your old age and therefore reduce your reliance on the State are obviously correct. Is that a bad thing?

I hear all the bleating about benefits but again step back and think. The Government has very clearly said (and NO oposition party are arguing) that all the complicated pension benefit structures will be dropped in the coming years and a simple enhanced single old age pension will replace them. That means any private pension income you save for will be on top of your State Pension benefit.

Finally people keep referring to ISAs as an alternative. The whole point is that:

1. Your employer contributes to the pension saving (i.e. for a pension you make 100% on day one - no ISA can do that).

2. ISA do not attract tax relief on the contributions made (so there is another 20% minimum saving or in other words an ISA has to make 20% just to catch up to where the pension saving starts).

3. Finally, yes with an ISA you do have to buy an annuity at what may be poor rates. Guess what, people are living a lot longer what is your REALISTIC alternative.

By the way do the maths and you will find that you will have paid no more than 40% of your pot in yourself. You can take 25% of your pot as a tax free lump sum. This means that at most you will have paid 15% of your total pot from your own income the remaining 60% of the pot is pure profit, contributed by either tax relief or your employer (and that is before any investment growth).

Come on Guys. I do NOT like compulsion, I don't like how we are more or less compelled to take an annuity at retirement but to suggest that saving for retirement using a WORK BASED pension, that your employer pays into, is a bad idea is just being bloody minded.

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Dek

Sep 11, 2012 at 11:20

Sorry all. Point 3. should read that with a pension you have to buy an annuity. Not with an ISA.

Sorry!!

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Chris Clark

Oct 01, 2012 at 12:20

I was very pleased to see these changes made today, well overdue. The trouble is, only a microscopic % of the younger population are guided by Citywire wisdom, and rather more guided by pints with pals down the pub than provenance through pension pots and thoughts of old age.

By having a pension that starts off relatively painlessly, you automatically think about pensions in coming years. By not having it, you start thinking about using your house, possibly bought on an interest only mortgage, as your pension.

I really do think this will change the pension landscape over time. And for all the nanny-state decriers such as Rose G, well, you can always opt out!

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Annabel

Oct 01, 2012 at 12:26

We seem to have forgotten that any money saved by the Government will end up as money that we save on taxes - I know that they like to pretend that all public spending comes out of their own pockets but it comes out of ours!

Encouraging people to save even a little is a healthy attitude to foster - my company is starting this today and we're really excited to see what happens - but overall reaction is incredibly positive.

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Anonymous 1 needed this 'off the record'

Oct 01, 2012 at 12:30

What about people past 60 years old who now work part time in one of these big firms to keep active after retiring from main career, or maybe to supplement their pensions income already being paid out as they have reached the age when they can retire, but they still want to work a little?

They may well have been in a scheme for most of their working career and already have made adequate provision for their pension income.

It is crazy to automatically make them join a pension scheme.

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cc

Oct 01, 2012 at 12:44

I absolutely agree that it is best to save for a pension, but would suggest that people chose the non-company pension (provided the charges are reasonable). This is so much simpler if you change jobs. Also many employers go bust or merge with others - in the past this has led to unfair two-tier systems within large companies.

Surely the government could have introduced a version of the equity ISA which is aimed at pension saving, with tax relief on contributions. Many ISAs can now be set up in a drip-feed mode, which is not only more affordable but, it is suggested, is a safe method in volatile markets.

We are amongst the many who had much of our private pension stolen when Brown changed the rules, and would be loath to get involved in any government pension scheme, just in case they decided to cheat us again.

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peter hart

Oct 01, 2012 at 13:27

Not with a very long barge pole. As already suggested an ISA is the way forward.

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Chris Clark

Oct 01, 2012 at 14:46

@peter hart

Dek would disagree. So do I.

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Tony Peterson

Oct 01, 2012 at 15:07

Dek is talking through a hole in his head.

You do not have to buy an annuity with an ISA!! The idea is twaddle. An ISA is your money to do whatever you want with it.

My ISA just keeps on growing, as well as paying enough to fund my retirement if I needed it to. I have no more intention of buying an annuity with it than I have of voting for any of the major parties ever again.

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Dek

Oct 01, 2012 at 15:17

At risk of wasting my breath I will repeat - employer matched contribution = 100% profit!!!!

ISA - the whole point of Pensions is that you CAN'T dip in to this saving until you retire. As such an ISA doesn't work for pension savings but are great for general savings vehicles.

Saving for retirement needs to be differentiated from general saving for life events. There is no point in saving for retirement if you haven't got a roof over your head or some "fall back" funds on one side or you have large debts you need to settle. Only once you have a relatively stable financial position can you really start saving for retirement. The problem is that not saving means (as pointed out by Annabel) we will ALL have to supplement, through taxes, those who do not save for retirement.

Chris - you know me to well.

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Dreckly

Oct 01, 2012 at 15:27

Dek's got it spot on in my humble opinion.

The millions of people who don't have a company OR private pension are mostly far from stupid, but a large number must certainly be like the proverbial ostrich.

Average UK gross pay per week is currently somewhere around £500 a week although this figure of course disguises a very wide variation.

How on earth does Joe Average think he'll get by on a 70% cut in income when he retires - assuming the £140 per week flat state pension materialises?

IFAs have previously focused on people who have a) some spare cash & b) taken responsibility for their future.

Sadly, in the absence of any other stimulus, the government has no choice but to coercion the rest.

Alternative: Raise NI (ie tax) by several percentage points.

** Hold up, isn't that exactly what's being proposed - except that unlike NI - the money stays in a pension pot... ?

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Tony Peterson

Oct 01, 2012 at 15:32

It might be 100% profit if you could get your hands on. My educated guess is that no-one who takes those tax and employer bribes will ever have the full value returned to their own control. In retirement, or ever.

If money isn't yours to dip into whenever circumstances demand that you need to, it just isn't your money.

If Dek cannot trust himself not to dip into his own putative retirement savings that's his problem. He can talk for himself. Not me.

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Bill lawson

Oct 01, 2012 at 15:40

Moving employers causes problems it did for me , many people change workplaces a number of times , the new system has got to be government controlled to prevent the Robert Maxwell event and others that are so inclined to milk the pension pot .. 50% added to your contribution has got to be a good thing ,

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Chris Clark

Oct 01, 2012 at 17:10

@Tony Peterson

You may have your approach, and you unusually seem to have had the wisdom to save via 'something'.

The rest of the country apparently without your insight would seem to need a little steer both direction and persuasion.

Perhaps a bit less of the lecturing. Wrong audience.

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Dek

Oct 01, 2012 at 17:59

Thanks Chris. Support appreciated.

Yes you are right I haven't dipped into my pension pot and have been saving since I was 16 (a lot of years as I am on the final approach in terms of retirement) when my fellows at that age were down the pub and on foreign holidays.

I did the same but just spent a little less doing it. I know that we have a generation who on the whole (but not all) seem to spend today and have no concern about how they will fund tomorrow. In some ways you can't blame them as they have been told for years that greed was good and the state would provide. Never the less, those more prudent (and disciplined) WILL have to pick up the bill.

My point was, and I stand by it, a significant proportion of the population are not saving for retirement and if the proposed savings solution is accessible funds it will (in the majority of instances) fail to work.

I have too often posted the justification (see my Sept. 11th posting above in terms of real cost to the employee of pensions) for using a work based pension, where the employer matches contributions. Either you accept this as true or you don't. At the end of the day it is individual choice - for now!

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Tony Peterson

Oct 01, 2012 at 21:40

Is this a nation of total wimps, unable to understand the benefits of direct ownership?

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RichardPrice

Oct 02, 2012 at 13:10

"Large companies with 250 qualifying employees or more have to have auto-enrolment in place by 1 October 2012" is seriously wrong. Only companies with 120,000 qualifying employees or more have to have auto-enrolment in place by 1 October 2012. Some of the other dates are wrong as well, since they have not taken into account the modified dates for small employers - see http://www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx .

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