Workplace pensions & Auto-enrolment

Within this article I will be covering some common questions regarding auto-enrolment and workplace pensions. This is very much an overview, and any specific questions should be directed towards a financial adviser and/or your scheme provider, as everyone’s personal circumstances are different.

What is Auto-enrolment?

The government introduced auto-enrolment in 2012 to encourage more people save for retirement. Since then, more than 10 million people have been auto enrolled and with the help of their employers are saving for retirement.

Employees must be automatically enrolled into their company workplace pension if they meet the following criteria:

  • 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.

Should you meet the above criteria you will be automatically enrolled into your workplace pension with a minimum contribution of 8% of your annual salary; 5% by employee and 3% by employer. If you do not meet the above criteria, there is no need to feel left out – you can still choose to opt-in to your workplace pension by raising a request with your employer.

Should I opt out?

The simple answer for most people is no…

By opting out you will miss out on a number tax benefits, employer contributions and most importantly saving for your retirement.

For some however, there are special situations, which need to be considered, such as those with fixed protection and/or high earners whose contribution scope is reduced. Please refer to Pension Pitfalls for further details.

Won’t I earn less?

Whilst your net take home income will be slightly lower when making pension contributions, in most cases you will technically earn more by paying into your workplace pension. Employers must pay into your workplace pension if you do. Employer contributions coupled with tax relief essentially doubles your pension contributions, resulting in higher total earnings.

How do I double my money?

Based on the minimum contribution of 8% for every £1,000 earned the rules are as follows:

You contribute £40
You will receive tax relief * £10
Your employer contributes £30

Thus, turning a contribution of £40 into £80.

Many employers will match pension contributions that you personally make up to a defined percentage of your salary. For example, some employers match contributions up to 5%, which would turn a £40 net contribution into £100. Something well worth enquiring about.

* This is basic rate relief (20%). higher/additional rate taxpayers can claim a further 20/25% via self-assessment

What if I leave my place of work?

 Regardless of where your career takes you, any money paid into a workplace pension is yours to do as you wish with. It is important to stay on top of pensions and ensure you update providers with any changes in address. There is also the potential to consolidate all your pensions into one, but this is something you should talk to an adviser about before doing so.

Please note you cannot withdraw money paid into your pension until minimum pension age. This is currently age 55 but is due to increase to age 57 from 2028, with the intention of continuing to be 10 years before state pension age thereafter.

Conclusion

Pensions have many advantages that will help your savings grow quicker. In terms of workplace pensions, many consider them to be long term savings plan that have the added benefits of tax reliefs and most importantly employer contributions. They are also one of few places that you can instantly double your money.

Five wealth offer holistic advice on pensions and retirement planning and are always happy to have a non-obligatory initial conversation. Should you have any questions regarding pensions and or wider financial planning please do not hesitate to contact us.

 

Please note: invested capital is at risk and you may find that you get back less than what you put in. Workplace Pension are regulated by The Pensions Regulator. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

 

 

 

 

 

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April 21, 2022 Post by Tyme Regent-Bascombe
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