Auto-enrolment - it's a phrase you'll probably have heard of, but may not know what it means.
But it is something which will affect everyone in employment soon - so here's our guide to what it means and what you need to know about it.
What is auto-enrolment?
The law on workplace pensions has changed, and now all employers will be obliged to provide - and pay into - a workplace pension for their employees.
Under the new Pensions Act, all employers must provide a pension scheme to their staff by April 2019, and all eligible workers will be automatically enrolled into it.
The aim is that the change will result in people having more money when they retire, so they won’t be overly reliant on the state pension.
Who will be affected?
Those aged between 22 and state pension age who earn over the earnings threshold (currently £10,000 per year) and work in the UK will be automatically enrolled into a pension scheme.
How much will be paid into my pension?
The Government has set a minimum contribution level which you and your employer need to meet.
These minimum levels, like the automatic enrolment scheme as a whole, are being phased in.
It's proposed that by 6th April 2019:
- Your employer will have to pay in at least 3% of your qualifying earnings (which is your pay before income tax and National Insurance deductions)
- Through your wages, you will pay in at least 4% of your qualifying earnings
- The Government will also provide 1% in tax relief to your eligible earnings
So for example, if you pay in £40, your employer will pay in £30, and you then receive a £10 tax relief from the government, so a total of £80 goes into your pension each payday.
All current pensions will also have to meet these minimum contributions.
It means both you and your employer could be obliged to pay more if those minimum levels are not being met – but it will also mean you have more saved when you retire.
Want to know more?
There’s more information available on the government's website.