Pension auto-enrolment: Your questions answered

October 1 marks a full year since the start of auto-enrolment, designed to give more than 10 million workers access to a workplace pension for the first time - unless they want actively opt out. Time then, for a refresher on what it all means.

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Q: What is auto-enrolment?

A: A government scheme which says employers (by law) must automatically enrol their employees into a workplace pension. Previously, the onus was on you to sign up for your employer’s pension scheme, if it offered one.

Q. When will auto-enrolment affect me?

A: The scale of auto-enrolment means it has to be implemented in stages.  At the start of the scheme roll out, only the largest of the country’s employers (those with 120,000 staff or more) were required to join.

A year on, from October 1, 2013, companies with staff numbering between 800 and 1,249 will have to start auto-enrolling them into a workplace pension.

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To find out when you might be affected, take a look at the table below. This shows on what date your company has to enrol its staff in a pension, depending on the number of employees it has.

 Staging date

 Company size
(number of employees)

Total number of
UK employees 

 01/10/2012

 120,000 or more

 878,786

 01/11/2012

 50,000 - 119,999

 1,217,420

 01/01/2013

 30,000 - 49,999

 940,549

  01/02/2013

 20,000 - 29,999

 1,156,802

  01/03/2013

 10,000 - 19,999

 2,234,083

  01/04/2013

 6,000 - 9,999

 1,973,535

  01/05/2013

 4,100 - 5,999

 1,284,804

  01/06/2013

 4,000 - 4,099

 81,000

  01/07/2013

 3,000 - 3,999

 818,238

  01/08/2013

 2,000 - 2,999

 1,028,959

  01/09/2013

 1,250 - 1,999

 1,035,719

  01/10/2013

 800 - 1,249

 919,317

  01/11/2013

 500 - 799

 964,238

  01/01/2014

 350 - 499

 734,221

  01/02/2014

 250 - 349

 662,901

  01/04/2014

 160 - 249

 919,504

  01/05/2014

 90 - 159

 1,135,716

  01/07/2014

 62 - 89

 790,135

  01/08/2014

 61

 32,513

Q: Will I be automatically enrolled at the relevant date?

A:  You’ll be automatically enrolled in your employer’s pension scheme if:

  • You’re at least 22 years old.
  • You’re below state pension age.
  • You earn more than £9,440 a year. (This figure is reviewed every year.)
  • You’re not already part of a company pension scheme.
  • You work in the UK.

If you answered yes to those five points, then you’ll be automatically enrolled in your company’s pension scheme – but don’t worry, you’ll be given plenty of warning. Even if you don’t fit the above criteria, your employer has to let you join its pension scheme if you ask to.

Q. How much will I pay in?

A: This table shows how much you’ll pay in at first, and how contributions will go up over time:

 

 Total contribution
required

Your employer's
minimum contribution 

Your
contribution 

Tax relief 

 Up until
September 2017

2% 

1% 

0.8% 

0.2% 

 October 2017 to
September 2018

 5%

 2%

2.4% 

 0.6%

 October 2018
onwards

 8%

 3%

 4%

 1%

Your contribution isn’t a percentage of your annual salary, it’s a percentage of anything you earn over a minimum amount (£5,668 for this tax year, and up to a maximum limit of £41,450).

So, if you earned £20,000 a year, your contribution would only apply to £14,332 of your salary, i.e. the difference between £5,668 and £20,000.

Based on a salary of £20,000 you’d make the following contributions:

  • Up until 2017 you’d pay £114.65 a year (or £9.55 a month).
  • From October 2017 to September 2018 you’d pay £343.96 a year (£28.66 a month)
  • From October 2018 onwards you’d pay £573.28 a year (£47.77 a month)

 This assumes your salary remains the same and you don’t opt out.

Remember that your employer makes contributions too. This video illustrates how much it could all add up to over your lifetime, based on average earnings:

If you don’t think you can afford your contributions, you may be able to reduce them for a short period, rather than just opting out. Your employer will provide more details.

Q: What type of pension will I get?

A: Your company will most likely offer you a ‘defined contribution’ pension.

With a defined contribution pension scheme, the money you pay in from your salary is invested by a pension provider, chosen by your employer.

The amount you’ll get when you retire will depend on how much was paid in, how long you paid in for and how well the investments have done.

Your returns are not guaranteed, and the value of your pension can go both up and down, depending on the stock market. However, you’re investing over such a long period that you should ride out any market volatility.

Defined contribution pension schemes are usually run by pension providers, so if your employer went bust your pension pot would not be lost.

Pension providers should be regulated by the Financial Conduct Authority (FCA), so if yours can’t pay you’ll be covered by the Financial Services Compensation Scheme (FSCS).

If you work for a smaller company, then you will probably be enrolled into a National Employment Savings Trust (NEST) defined contribution scheme. This is a government-run pension scheme that aims to provide a ready-made solution for smaller employers so they can meet their obligations.

A few company schemes offer “defined benefit” schemes. This type of plan which is sometimes also called a ‘final-salary’ or ‘salary-related’ pension, guarantees you a certain amount each year when you retire. However, due to the expense of offering this type of scheme, very few pensions are now defined benefit plans.

If you have a defined benefits pension scheme and your employer goes bust, you should be protected by the Pension Protection Fund and able to reclaim at least 90% of your pension pot.

Q: What if I move to a new company?

A: It won’t matter. The money you have paid in will stay invested until you reach pension age and you can join another scheme with your new company. You might be able to combine your old and new pensions, so ask your pension providers what your options are.

Q: How do I opt out?

A: You simply tell your employer you don’t want to be part of the pension scheme.

You’ll be automatically enrolled again every three years, and each time you’ll have to tell your employer you don’t want to be part of the scheme – even if you’re at the same company.

Once out, you can opt back in at any time – but your employer only has to accept you back into the scheme once every 12 months.

Q: If I opt out, will I lose what I already paid in?

A: Opt out within the first month and you’ll get back any money you paid in. If you opt out after this period ends, and depending on the scheme, the money will likely be locked away in your pension pot until you retire.

Q. What about my State Pension – how old will I be before I can claim?

A: This question doesn’t have a straightforward answer. For men born before December 6, 1953, the current State Pension age is 65, and for women born after April 5, 1950 (but before December 6, 1953) their State Pension age is between 60 and 65.

Under the Pensions Act 2011 women’s State Pension age will increase to 65 between April 2016 and November 2018. From December 2018, the State Pension age for both sexes will start to increase to reach 66 in October 2020. (You will only be affected by these changes affect you if you are either a woman born on or after April 6, 1953 or a man born on or after December 6, 1953.)

The government also announced in November 2011, that State Pension age for men and for women will now increase to 67 between 2026 and 2028.

It might be easier to work out your State Pension age under the current law, with this calculator from the Pensions Advisory Service – a non-profit making organisation that provides free advice about all types of pensions. It can also help if you have a problem, complaint or dispute with your workplace or private pension arrangement. Look at Pensionadvisoryservice.org.uk for more details.

(Bear in mind the calculator doesn’t factor in the recent announcement to bring forward the increase to 67.)

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