What's this Auto Enrolment thingy?

This topic contains 1 reply, has 2 voices, and was last updated by Holly Mackay Holly Mackay 6 months, 2 weeks ago.

Pensions  |  Investments  |  General Meltdown
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What’s this Auto Enrolment thingy?

This is not full-fat regulated capital 'A' advice - that costs.And you need to see a financial adviser for that. But hopefully this is some useful food for thought.
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Holly Mackay

The law has changed and larger employers have started setting up workplace pensions for their staff and from 2018 every employer has to offer their staff a pension.

From 2019 you will have to put in at least 4% of your salary. The Government will bung in an extra 1% and your employer has to put in at least 3%. So that’s 8% which will be building up, month after month.

The more you earn, the more you will save.

You can stick two fingers up at this (“opt out”), but it’s not a great idea because you’ll forfeit the 3% from your employer and 1% from the government.

There is a minimum total amount that has to be contributed by you, your employer, and the government in the form of tax relief. This total minimum contribution is currently set at 2% of your earnings (0.8% from you, 1% from your employer, and 0.2% as tax relief). This is going up over the next 2 years.

The minimum contribution applies to anything you earn over £5,824 (in the tax year 2016-17) up to a limit of £43,000. This includes overtime and bonus payments. So if you were earning £18,000 a year, your contribution would be a percentage of £12,176 (the difference between £5,824 and £18,000).

This amount is slowly ratcheting up between now and 2019. The Government wanted to ease us all into this gently – and for small employers this is quite a chunky pill to digest!

From April 2018 this will jump to a total of 5% of your earnings (2.4% from you, 2% from your employer, and 0.6% as tax relief). And from April 2019 onwards, it will get to a significant 8% of your earnings (4% from you, 3% from your employer, and 1% as tax relief).

Our Retirement Income Guide has some more detail.

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The (relatively!) youthful Adam is a self-described Finance Nerd. He’s a Chartered Financial Planner and a fellow of the Personal Finance Society (blah blah blah). More interestingly, he works primarily with up and coming…full bio

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