Auto enrolment pensions for employees

In 2012 new rules came into effect which require every employer in the UK to set up a pension scheme and automatically enrol their staff into it.

The government has insisted on a minimum level of contributions that must be paid into these new workplace pensions.

Your employer will have to contribute some of this minimum contribution, and employees will have to make up the rest.

We have provided some information to help you understand these new rules and how they affect you. You should read these carefully, and ask your employer or HR department if you have any questions about your specific scheme.

Everything you need to know about auto-enrolment opting-in, opting-out, joiners and leavers

Auto-enrolment pensions have been around for a few years so it’s becoming increasingly common for employees to have started to build up decent pension pots.

As our working lives become increasingly mobile, it’s also likely that you will have moved employers during this time, so we have a section below specifically for auto-enrolment leavers.

If you want to talk about any aspect of your pensions or retirement planning, you can always call or email us, or skip straight to the contact form at the bottom of this page.

Why are auto enrolment pensions important?

It’s important to save money for the future, and a pension is basically a moneybox wrapped up in some special tax rules.

You might now have been interested in pensions before, but auto enrolment represents a great opportunity to get to grips with your retirement savings and take control of your future income.

How do auto enrolment pension schemes work?

Auto enrolment pension schemes work a little differently to other group pension arrangements you might be familiar with, but really there is nothing complicated about them. It’s simply that the process and some of the terminology might be unfamiliar.

You can find our more about the steps involved and how this will affect you by using the menu above. These are a guide to the auto enrolment process. If you are already a member of a pension scheme you should refer to your own company’s HR department for details of your own scheme as these can vary from firm to firm.

Even if you have never cared about pensions in the past, and even if you are not interested now, you have a responsibility to look after your own financial future.

BBi Financial Planning are experts in providing bespoke personal financial advice, but we can’t advise everyone. If we could, we would tell everyone to start by making a budget and planning for the future.

Auto enrolment is your opportunity to plan for your future.

Auto enrolment pensions and your responsibilities

We understand that many people find pensions boring, but pensions are the most tax-efficient way to save for your future. (We understand that the phrase ‘tax-efficient’ is not going to have you dancing in the streets either).

The new auto enrolment rules mean that for the first time your employer is required by law to contribute to a pension scheme that you will own. If you are automatically enrolled you have the right to opt out and get your money back (if you act quickly enough) but you should make sure you consider your choice carefully.

If you’re not going to look out for your own future, who is?

How auto-enrolment assessments work

First of all your employer will assess you to see if you are an eligible worker, a non-eligible worker, or an entitled worker.

This exercise is to see if you will be automatically enrolled into the pension scheme and have contributions deducted from your pay.

The definitions of each of these terms is below.

Eligible workers

Earn above £10,000 per annum and are aged between 22 and the State Pension Age (this will be based on your year of birth).

Non-eligible jobholders

Earn between £5,824 and £10,000 per annum, and are aged between 16-21 or State Pension Age-74.

Entitled workers

Earn less than £5,824 per annum and are aged between 16-74 years old.

If you are not automatically enrolled you can still join your employer’s scheme, and if you are enrolled you are free to leave.

How automatic enrolment works

Depending on the results of your assessment you might be enrolled into the pension scheme automatically.

If you are eligible, you will be enrolled automatically and your employer will have to contribute on your behalf.

If you are non-eligible, you will not join automatically but you can if you choose. If you choose to join your employer must make contributions on your behalf.

If you are entitled you will not join automatically but you can if you choose. If you choose join your employer is not required to make contributions on your behalf.

These are only the automatic outcomes of your assessment.

You still have a choice whether to remain in the scheme or join it if you were not enrolled.

Opting in and opting out of your auto enrolment pension

Regardless of the results of the assessment the choice to remain in the pension scheme if you are added automatically, or join it if you are not, is yours.

If you are enrolled and you don’t want to be in the scheme you can opt out. You will need to do this in writing, and depending on the pension scheme arranged by your employer, you may be able to do this online. If you opt out then any money deducted from your salary will be returned to you.

Opting out is not the same thing as leaving the scheme. Opting out applies only to the first month following your enrolment. You can only have a refund if you opt out in the first month. If you leave the scheme after this time you will not get a refund.

If you are not automatically enrolled and you want to join the scheme you can opt in. Your employer may be obliged to contribute to your pension but this will depend on whether you are assessed as a non-eligible or entitled worker.

The top five things you need to consider as an auto-enrolment leaver

Step 1: Check your retirement plans

Leaving your job doesn’t mean you have to leave behind your auto-enrolment pension. Your plan won’t simply vanish.

If you’ve had several employers over the years it’s possible you’ve built up several pension pots. It’s possible to combine these into one plan (see below) but before you do that it’s a good idea to review your overall retirement planning.

(Note this is a very rough calculation to give you an idea of what your income could be in the future. We can help you make more detailed projections but ultimately none of these are guaranteed.)

If you want to talk about your retirement plans and your future income, give our advisers a call on 020 8559 2111.

Start by gathering information on all your different pension plans and keep this information in once place. (Google spreadsheets are ideal).
Add up the value of each plan to get the total.
A very simple projection is to double this total for every ten years until you retire. (This equates to an annual investment return of 7%, which is reasonable for a long term estimate.)
This will give you a rough idea of what your pension fund could be worth when you retire. You should request projections from your pension schemes too.
Finally, take this new total and divide it by twenty for an idea of what income this could generate. How does it compare to your expenses now?

Step 2: Consider transferring your pension

There are pros and cons to transferring a pension plan. On the plus side, you may be able to reduce your plan charges if you move to a cheaper scheme, your new investment options could be better for you, and having fewer pension plans will help simplify your finances.

On the other hand, some pension plans can come with valuable benefits and guarantees which could be lost if you transfer.

A pension transfer is definitely worth exploring, but don’t rush in to anything until you fully understand the implications for your money.

We only provide independent advice, so we have no problem in telling you not to transfer if we think this is the best thing for you.

If you want to discuss a pension transfer with one of our advisers and see if it might be right for you then call us on 020 8559 2111.

Step 3: Check your attitude to investment risk

Your feeling about investment risk is usually not fixed. It’s something that can change over time, perhaps due to age, or job security, or income.

We think the most important thing is to make sure your pension investments are aligned with your feelings on investment risk. You can take as much or as little risk as you want, but you need to be comfortable with the decision and be able to sleep at night.

Step 4: Understand what other benefits you have given up

Leaving a job can mean more than just leaving your auto-enrolment pension scheme. You might also have given up valuable life assurance or medical benefits. It’s possible that these will be replaced by a new employer, but we’ve noticed that these days, more and more companies seem to be passing over traditional life and health benefits in favour of wellness and mindfulness perks.

While these can still be valuable (anything which reduces your stress is valuable!) there’s still real value in having a life assurance policy that can pay out a lump sum, or knowing that your medical bills are covered.

Plus, having these benefits tied to your job can restrict your career options in future.

Call our advisers on 020 8559 2111 to see how we can help review and arrange independent cover that won’t let you down if you change jobs.

Step 5: Get back to basics with a new budget

A new job is a major change. It can mean a new commute (or working from home), new colleagues, new working habits and new expectations. That’s plenty to manage, but your finances will change too.

We don’t simply mean your basic salary. Your expenses could be different, and new perks, benefits and costs can all affect your net income.

A good understanding of how this will affect your budget will prevent any financial surprises and help you re-evaluate and reaffirm your financial goals.