Pensions are changing!

Pensions are changing

People in the UK today can expect to live longer than ever before. The number of retired people will rise by more than a third by 2050 but there will be relatively fewer people saving.

In 2008 the government introduced new pensions laws to get people saving. The idea is to help people to save by giving them access to a workplace pension scheme so they don’t have to rely on just the State Pension.

Many workers will be enrolled into a workplace pension without having to ask. This is called auto enrolment (AE).

After they join, workers will be able to put money from their pay into a retirement pot that will be ready for them later in life. Most workers will also be entitled to a contribution from their employer and from the government in the form of tax relief.

These are big changes to the way pensions will work in the years ahead.

Auto enrolment

Most workers in the UK are going to be automatically enrolled into a workplace pension scheme by their employer. From the date they’re automatically enrolled they’ll have a month to choose not to join, or ‘opt out’. If they do nothing they’ll be enrolled in the scheme. They’ll make contributions to their retirement pot from their pay for as long as they’re employed or until they take their money out.

Workers and employers can both contribute into NEST to build a retirement pot that’s invested on behalf of the worker. Workers who earn over a certain amount are entitled to a minimum contribution into their pot when they’re paid.

Minimum pension contributions

Minimum contributions are based on what’s known as ‘qualifying earnings’. Qualifying earnings are a section of a worker’s pay. For the 2018/19 tax year this is everything over £6,032 and up to £46,350. The qualifying earnings band is reviewed by the government each year.

Workers who earn at least as much as the lower threshold each year are entitled to a minimum contribution into their retirement pot.

The minimum contribution rate itself only applies to a worker’s qualifying earnings. So in the 2018/19 tax year, a worker’s minimum contribution will be 2.4 per cent of everything they earn over £6,032 but not of anything they earn over £46,350.

How minimum contributions are worked out

The minimum contribution is made up of money from a worker’s pay, money from their employer and tax relief from the government.

Employers can choose a more straightforward way of calculating their minimum contributions if they want to make things simpler. As long as the contribution is at least as much as the minimum, then employers will still be complying with their new duties.

The minimum contribution was introduced at 2 per cent of a worker’s pay. This is currently 5 per cent and will increase to 8 per cent in April 2019 (as illustrated above).

At Huddart’s we set up our workplace pension with NEST (National Employment Savings Trust).

Employers who set up their auto enrolment pension schemes with NEST end up feeling pretty good about it all. It could be the quick and straightforward set up. It could be that it’s free to use. Or perhaps it’s knowing that NEST has been set up by the government.

Every employer in the UK has to offer their staff a workplace pension scheme. Over 600,000 employers have already signed up to NEST. Joining them couldn’t be easier and we would welcome the opportunity to help you do this!