Compulsory Pensions For all. Or Auto Enrolment.

Discussion in 'Finance, Property, Law' started by BiscuitsAB, Feb 23, 2013.

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  1. BiscuitsAB

    BiscuitsAB LE Moderator

    Automatic enrolment - what is it?

    The government has introduced a new law to make it easier for people to save for their retirement. It requires all employers to enrol their workers into a qualifying workplace scheme if they are not already in one. At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer's scheme. Automatic enrolment is meant to overcome this.
    What is a qualifying workplace scheme?

    A qualifying scheme can be:

    A defined contribution scheme with a minimum contribution; or
    A defined benefit or hybrid scheme which meets certain conditions.

    Does this affect me?

    Employers have to automatically enrol workers who:

    Are not already in a qualifying workplace pension scheme;
    Are at least 22 years old;
    Are below state pension age;
    Earn more than £8,105 a year; and
    Work or ordinarily work in the UK (under their contract)

    However, even if you do not qualify to be automatically enrolled, you still have the right to join the scheme. If you tell your employer that you would like to opt in to the scheme, they must allow you to do so.
    When is this happening?

    Although automatic enrolment comes in from 1 October 2012, individual employers' duties will be introduced gradually over the following five years, and will be based on the employer's size.

    There will be a maximum three month waiting period before your employer must enrol you; however, if you are aged between 16 and 75 years and want to start saving straight away, you will be able to opt into the scheme.
    What does this mean for me?

    If you join a money purchase (defined contribution) scheme, you will have your own pension pot which you open when you retire. Contributions from you and your employer will be paid into your pot. You can keep the same pot even if you move jobs.

    What if I am in a final salary (defined benefit) scheme?

    If the scheme meets the minimum quality standards, then you will be able to continue to build up benefits in the scheme as usual. If the scheme falls short of the standard, then your employer may either have to make amendments to the scheme to improve the benefits or set up an alternative scheme. Your employer may have to consult the workers before making any changes.
    What if I don't want to be in a pension scheme?

    You can choose to opt out of your scheme at any time if you want to. If you opt out within a certain period (your employer will let you know of the deadline), any payments already made will be refunded, as if you had never joined. If you opt out after this, the payments already made will not be refunded and will remain in your pensions pot.
    Rejoining the scheme

    If you have opted out, you can rejoin at a later date if you wish.

    Your employer will also have a duty to automatically enrol you back into the scheme every three years, if you fall into the categories given above. This is to give you the opportunity to reconsider your decision.
    How much will be paid into my pension pot?

    If you are a member of a defined benefit scheme, your scheme will have to ensure that it meets minimum requirements.

    The minimum requirements for a defined benefit pension scheme are either:

    It has a valid contracting-out certificate, indicating that it is an appropriate replacement for the state second pension; or
    It provides broadly equivalent or better benefits than the benefits which a contracted-out scheme is required to provide.

    If you are in a defined contribution scheme, the amount of money paid in by you, your employer and by the government from tax relief is worked out as a percentage of your earnings. 'Tax relief' means that some of the money that would have gone to the government in the form of tax now goes to your pension pot instead.

    The government has set a minimum percentage that has to be contributed in total. This means your contribution, your employer's contribution and the tax relief added together. This minimum increases gradually between 2012 and October 2018.

    The proposed duration periods are set out below and will be updated once the DWP has finished its consultation.

    Timing Minimum Total Percentage that has to go into your pot
    October 2012 to September 2017 2%
    October 2017 to September 2018 5%
    October 2018 onwards 8%

    Contributions to the pension scheme can exceed this minimum.

    Within that total contribution, the government has also set a minimum percentage that has to be contributed by the employer. This will also increase gradually over time.
    Timing Minimum that has to be contributed by the employer
    October 2012 to September 2017 1%
    October 2017 to September 2018 2%
    October 2018 onwards 3%

    Employers will be able to contribute more than the minimum if they wish; many already do.

    These minimum percentages do not apply to all of your salary, but on what you earn over a minimum (currently £5,564) up to a maximum limit (currently £42,475).
    Can my employer base contributions on a different definition?

    If using a defined contribution scheme, your employer bases contributions on earnings from the first pound. If using this basis, it must also be able to meet the conditions laid down in one of the tiers of the new test. The tiers are as follows:

    Tier 1 - a contribution of at least 9 per cent of pensionable earnings of which 4 per cent must come from your employer;
    Tier 2 - a contribution of at least 8 per cent of pensionable earnings of which 3 per cent must come from your employer. There is also a condition relating to the percentage of earnings which must be covered; or
    Tier 3 - a contribution of at least 7 per cent of earnings of which at least 3 per cent must come from your employer.

    NB If your employer chooses to use either of the tier 1 or tier 2 tests they need to use a definition of pensionable pay that is at least equal to basic pay.

    Contribution rates for schemes using the tiered system will also be phased in. These are at the proposal stage and will be updated when the consultation is complete. The proposed contributions can be found here (link to detailed guidance section 4).

    Calculation example

    Each month:
    Your employer puts in £30
    + you put in £40
    + the government puts in £10 (tax relief)
    Total £80
  2. Then the government rapes the schemes, and you pay money for nothing once again :(
    • Like Like x 1
  3. BiscuitsAB

    BiscuitsAB LE Moderator

    Your a cynical barstard, but your probably right. The exercise is a long term project in reducing state pensions In my opinion!
  4. Its only a matter of time before 'x', your private pension, starts getting deducted from 'y', your state pension - all in the name of 'fairness'.
    • Like Like x 2
  5. BiscuitsAB

    BiscuitsAB LE Moderator

    Absolutely, and that time will be once real compulsion has come in. The current auto enrolment still allows people to leave the scheme once that changes then that will be the first step to the offset that you propose.

    Anyone for investing in silver :)
  6. what i find hard to accept is this - i saved all my life for a good retirement then i sit next to somebody who has saved **** all in the pub-come retirement age he gets the same as me in state pension !! i then take my private pension but because of the govenments abject failure to control its affairs the annuity paid is piss poor and rules bar you from taking more cash from your schemes as it would diminish the amount in them ( an amount that the other bugger never had in the first place cus he spent all his cash on wine ,women and a rock n roll lifestyle)-so whos the mug ? maybe i should have just spent the cash and relied on the ever reliable state to look after me !
  7. BiscuitsAB

    BiscuitsAB LE Moderator

    Ah sounds like you've hit a minimum gad problem there. I'd suggest you review things.
  8. ya like i said in another thread i have- but it still doenst change the fact that you are limited by gubmint rules as to how much of YOUR OWN money they will allow you to access. if i hadnt put it in the scheme it wouldnt now be available to me so why are they worried about it not being there when i reach pension age ! i understand that they put in a bit by way of tax breaks but there are those who saved and those who didnt- all i want is access to what i saved over 30 years and i shouldnt be penalised for doigt that
  9. BiscuitsAB

    BiscuitsAB LE Moderator

    Its all because you got tax relief on the contributions, they don't want you to have your cake and eat it. After all your not a politician so they don't see why you should.
  10. they can have their 20% back if they would let me have the other 80% i paid for- as a lump sum !!

  11. I suspect that anyone under 40 is not going to live happily ever after even if they can retire as the lights go out.

    Still, me and the mrs both retained our forrin johhnie nationalities so if it really goes tits, the exits are > thataway!
  12. BiscuitsAB

    BiscuitsAB LE Moderator

    hang on to those like a tramp hangs onto a bag of chips mate!