Auto-enrolment: what employers and employees need to know
Workplace pensions – like The People’s Pension – meet the government’s auto-enrolment regulations and provide a tax-efficient way to save for the long term.
What is automatic pension enrolment?
Most of us are living longer and in many cases struggling to afford the lifestyle we want in retirement. To counter this retirement savings shortfall, the government passed legislation in 2008 (the Pensions Act 2008) making it a legal requirement for every employer in the UK to set up a workplace pension for employees who meet certain criteria, this is known as auto-enrolment.
Put simply, auto-enrolment means employers must now automatically enrol employees, if they meet specific criteria, to their workplace pension scheme.
Previously, employees had to opt in to their employer’s workplace pension scheme or had no employer pension provision at all.
All employers need to think about it – even if they only employ one person – because they may need to provide their employee(s) with a workplace pension.
How does auto-enrolment work?
Before auto-enrolment, it was down to the employee to opt in to their employer’s pension scheme.
With auto-enrolment an employer sets up a workplace employee pension and their employees are automatically enrolled into it, although they can still choose to opt out.
Auto-enrolment contributions are made by the employee, the employer and the government. This money then builds up in a pension pot.
Most employed people are automatically enrolled into a workplace pension, but not everyone.
Employees need to:
• be aged between 22 years old and under State Pension age
• earn more than £10,000 a year (for the current tax year)
• work in the UK.
Don’t worry if you don’t meet these criteria. Your employer won’t automatically enrol you, but you can still join The People’s Pension. You should talk to your employer if you wish to join.
Auto-enrolment benefits: employees
The great thing about a workplace pension is that it’s not just the employee who pays into a pension
– the employer and the government contribute too. It’s extra ‘free’ money for the employee.
This money builds up in your personal pension pot and you can spend it when you retire, or any time after you reach 55 (the government proposes to increase this to age 57 from 2028).
Auto-enrolment pension contributions
Pension contributions made by the employee, employer and the government (this payment is known as tax relief), have risen to a total minimum of 8% of qualifying earnings from April 2019.