| Pensions experts have
warned that around three million people
may drop out of a government scheme
designed to encourage more workers to save
for their older age. According to the
findings of a Populus poll for the
National Association of Pension Funds,
released on 20 October, one in three
people would be unlikely to stay in a
workplace pension they had been
auto-enrolled into. It has been estimated
that auto-enrolment – which will begin on
1 October 2012 – could create up to nine
million new savers.
When asked why they would opt out, 48
per cent said they could not afford the
contributions, 29 per cent that they did
not trust the government and 26 per cent
that they did not trust the pensions
industry.
Meanwhile, the Pensions Regulator has
warned employers against leaving their
planning for auto-enrolment to the last
minute. Its own research, published in the
summer, found that 46 per cent of
employers quizzed would leave it as late
as possible before thinking about how to
comply with the new law. Among larger
employers, who will be affected first,
only 13 per cent were fully prepared.
Key points of auto-enrolment
include:
- employers will be required to
automatically enrol into a qualifying
workplace pension employees who:
- are not already in a workplace
pension scheme;
- are aged at least 22 but are below
state pension age
- earn more than a minimum earnings
threshold, currently £7,475 a year
- work in the UK
- the phased introduction of
auto-enrolment will begin on 1 October
with businesses employing 120,000 people
or more. Other employers will follow
until all are included by 1 September
2016. Businesses employing less than 50
people will come on board between March
2014 and February 2016
- the Pensions Regulator will write to
each employer around 12 months before
their date for starting automatic
enrolment, to remind them of their new
responsibilities
- based on each worker’s qualifying
earnings (between a minimum of £5,715
and £38,185 maximum in the current tax
year), the employer contribution will
start at a minimum one per cent of those
earnings during 2012-2016, rising to a
minimum three per cent from October 2017
- overall, the minimum total
percentage going into each employee’s
pension pot – including their own
contribution, their employer’s
contribution and tax relief – has been
set at two per cent of qualifying
earnings from October 2012-September
2016, rising to eight per cent from
October 2017 onwards
- pension schemes must meet certain
government standards for employers to
use them. The options include using NEST
(National Employment Savings Trust), a
simple, low-cost scheme, or using an
existing scheme that qualifies or
changing it so that it qualifies
- employees can opt out of the scheme
during their first month of membership
(when they can receive a refund of their
contributions) or at any time afterwards
(when contributions stay in the pension
pot). They can also rejoin at any time
and employers must automatically
re-enrol non-members meeting the
original qualifying criteria around
every three years.
LINKS:
The Pensions Regulator guidance for
employers
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