What's this Auto Enrolment thingy?
30 June 2017
Question by Derek
What's this Auto Enrolment thingy?
Answered by 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.
