Thousands of employees are about to be re-enrolled into a workplace pension. What does it mean for your money?
The start of October marks the three-year anniversary of the Government's workplace pension scheme, where employers are required to auto-enrol their staff into pensions.
The three-year anniversary is particularly significant for those that chose to opt out when the scheme first launched, as they are about to re-enrolled.
Opting out
While it is compulsory for employers to set up – and contribute to – workplace pensions for their staff, the employee can opt out if they choose to do so. However, every three years employers must re-enrol workers who stopped saving but still qualify for the scheme.
Re-enrolment can happen three months either side of your original 'staging' date. The re-enrolment date is commonly known as the ‘anniversary date’ or the slightly less romantic ‘cyclical re-enrolment date’.
If you decide to opt out after you’ve been re-enrolled, you’ve got a one-month window to do it. Then it’s your employer’s responsibility to process it.
What it would mean for your monthly salary
The amount you and your employer pay in is gradually increasing as workplace pensions become more commonplace. Until 2017, the overall minimum contribution is 2% of your monthly salary: employers pay 1%, employees pay 0.8%, and then there's tax relief of 0.2%.
From 2017-2018, it increases to a total contribution of 5% (employers 2%, employees 2.4% plus tax relief of 0.6%) and from 2018 onwards, it’ll be 8%, made up of employers paying 3% and employees paying 4% plus tax relief of 1%.
These are minimum contributions so if you want to put more in, you can.
At the moment, if you earn £26,000 a year you would be putting in £13.45 a month, while your employer would contribute £16.81 with £3.36 tax relief on top. That means a monthly total contribution of £33.63.
According to NEST, which is the Government-backed workplace pension provider, there’s currently £350 million missing from workers' pension pots due to opt-outs: £35 million in tax relief and £170 million from employer contributions. So you should definitely think long and hard before opting out again.
Who is handling my pension?
Workplace pensions are being phased in, so if you work for a small firm you may not be enrolled in one yet. For a full breakdown of how it all works, read Workplace pensions: what it means for you.
It's also worth noting that NEST isn't the only firm offering workplace pensions. The provider that your employer chooses to open their pension scheme with will affect the way your pension pot is invested. Check out Workplace pensions: the alternatives to NEST for more.
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