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What's this workplace pensions thing?

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.

What's that purple splat?

Do you remember that rather strange purple Womble thingy on telly? That was the Government’s campaign to tell us all about so-called Auto Enrolment.

Automatic Enrolment happened because the powers that be in Westminster saw that no-one was saving up for retirement. And gone are the days of comfy final salary schemes. And irritatingly enough, people are daring to live for longer. So how on earth is everyone going to manage when they retire and there are no big handouts from the State OR from a company you worked at for about 100 years.

So enough of the carrot, here comes the stick. Every business has to provide a pension for its staff – whether you’re British Airways, the local chippie or even if you employ a nanny, cleaner or carer. #adminnightmare

How much is involved?

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).

This article from the Money Advice Service has extra helpful information.

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