Many of us try to save money as a wise and sensible strategy, but this isn’t necessarily always what you might term a great investment – you aren’t extracting a great deal more value than you’re putting in, although you are building a nice nest egg. The money that you save is often far better placed in a private pension fund than sitting in a bank account gaining small interest rates. ISA’s and internet accounts can all be highly worthy ventures, but the opportunity of a good pension scheme often overshadows them.
Many citizens of the UK surprisingly still neglect to have a private pension scheme in place. According to the stats, released by leading provider NOW: Pensions, only 55% of people have a pension type scheme in place
However there is new pension legislation which has taken effect from October 2012 in the UK. The main change is that an employer must automatically enrol it’s eligible employees into a workplace pension scheme to help them accumulate more savings for the future. Large companies had to start implementing the changes from 2012 and this will eventually filter through to smaller businesses between now and 2018. But what does this involve for both sides…
What an employee needs to know
If you are an eligible UK citizen, your employer will contact you to let you know how it affects you and the fact that you can opt out of the scheme at any time. Auto enrolment means that your employer will enrol you in the scheme and make contributions towards your pension. There are a few eligibility requirements. The first is that you work in the UK under a contract. The second is that you are between 22 and state pension age, and the third is that you earn above £8,105. Auto enrolment also applies to temporary workers, but not people who are self-employed.
What an employer needs to know
An employer must provide a scheme for its employees, enrol eligible jobholders, pay employer contributions, let jobholders know that they have been enrolled and that they can opt out and register and confirm the details of your scheme and how many people have been auto enrolled. An employer must contribute the equivalent of at least 3% of the employee’s earnings and the worker must pay the rest.
The reasoning behind the new auto enrolment system in the UK is that people live longer nowadays and therefore pensions are more important than ever to ensure enough savings for a comfortable retirement. Some people just don’t bother to set up their pension fund, and others don’t pay in enough for it to really help them when they need it, so this new scheme means that every eligible UK employee will get a pension fund and it will be a case of having to opt out rather than opt in.
This surely seems like one of the best schemes to save money for the future and it is unfortunate for workers that more governments don’t enforce similar legislation.