PLANNING
Auto-enrolment and
workplace pensions
In October 2012, the government introduced new rules to encourage more
people to save for retirement.
This new process is called auto-enrolment. It
means that you will be automatically placed into
your company's pension scheme.
Employers are now obliged to offer a qualifying pension
scheme to their employees.
All workers who earn above a certain
amount (£10,000 a year in 2015/16) are
automatically enrolled into a pension
scheme.
If you work for a large employer, this will have
happened in October 2012. If you work for a medium
or small company, you will be automatically enrolled
into a pension by 2016.
You can opt out and leave the scheme, but only after
you have been automatically made a member.
The National Employment Savings Trust (NEST) is an
independently run defined contribution (DC)
pension scheme specifically designed for low to
moderate earners and those whose employer has no
existing scheme. It will also be open to the self
employed who wish to set up a personal pension.
Annual contribution limit:
Employee + employer + tax relief
£4,700
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NEST members are restricted to an annual
contribution limit of £4,700. This is the combined total
from the member, their employer and the government
(via tax relief). The minimum employer contribution
will be 3 per cent of qualifying earnings in 2018.
NEST fees for members have been set at a 0.3 per cent
annual management charge and an initial 1.8 per cent
charge on contributions. For most people, these will
be lower than existing DC schemes, which typically
charge an annual management fee of 1 per cent.
NEST investment choices will be limited to five default
funds and an ethical fund. They incorporate lifestyling,
or a reduction in exposure to riskier investments, as
the member nears retirement .
Key points
Workplace pensions are being made mandatory
to all employers large and small by 2016
Your employer will match your contributions
to a preset limit
These pensions may not provide you with a
sufficient income in retirement as
contributions tend to be small