There are around one million businesses in the UK that must by law put in place a pension scheme for their workers during 2017. There are those who haven’t yet done so from last year, plus another 750,000 this year. Ten million workers are potentially impacted, that’s one in six of the UK population.
When all this is done, over 70% of the UK working population will find themselves in a workplace pension scheme. This is up from 50% five years ago.
Why is this all necessary?
Today, there are four workers for every pensioner. By 2050, there will be two workers for every pensioner. The State pension is funded by taxpayers, to be affordable for the nation the State pension age is being raised so people must work for longer. The future State pension has been set at today’s prices at just £155.65 per week. If people are going to have a comfortable level of income in retirement, more needs to be done, something must be done to increase levels of private pension provision.
A Gift to Your Future Self
There remains a strong link between poverty and well-being. To be happy, we need a comfortable standard of living. If you find yourself in the future struggling financially then your well-being is likely to suffer, and you risk being a financial burden on future generations.
Your options will be:
· Carry on working
· Sell your property or business
· Do something now
Your best option just might just be for your future-self to advise your present-day-self to pay attention today, and act.
Is do nothing now an option?
The Government has made sure that you will be given access to a workplace pension scheme under these latest changes. If you are aged between 22 and State Pension Age, and earning over £833 per month, you will be automatically enrolled to it. If you are between 16 and 75 you will be allowed to join it. All workers earning over £486 per month will be offered pension contributions from your employer. Funding rates are 2% of pay today, rising to 8% in 2019. So, by doing nothing, it’s true, 2 in 3 workers will end up with a workplace pension.
What’s happening in practice?
So far things are pretty much going to plan for the Government. 370,000 employers have met their duties, and there are 7 million new members in workplace pension schemes. Only 1 in 20 employers failed to comply with the law by the deadline, and most of these now have a scheme in place for their workers. However, when checked six months prior to the date duties apply only half businesses had started looking at auto-enrolment. Many employers have left preparation late, and are rushing their duties.
In 2017, we can expect nearly one million businesses employing 10 million workers to have to comply with the new auto enrolment regulations.
One duty that is often overlooked is the requirement to compare schemes and select one that’s appropriate for the workforce. Evidence suggests that 3 in 4 employers choose the first scheme they come across (often the Government supported one – Nest), or one that their business advisers use for all their clients. In other words, a comparison is not taking place.
Does scheme selection matter?
If you earn less than £11,000 per year an inappropriate scheme selection could result in you missing out on valuable tax relief, your pension pot could be 20% smaller.
If your employer chooses a scheme with high pension charges, or poor projected investment returns, your pot could be smaller by as much again.
You could find yourself in a scheme where you are locked in until retirement, when you find yourself with limited retirement options.
You could find yourself in a pension scheme that doesn’t communicate your pension benefits very well.
The combined effect of all of this could be your future self, having a much smaller pension pot at retirement than you expected, simply because the employer did not do their job properly at the beginning.
What can I do to change things?
You can show an interest in auto-enrolment. Ask your employer questions. Make sure your employer is aware of the need to take care with their duties, and in particular, to choose a scheme that is right for the workers.
Remember, you have rights that are safeguarded. Your employer is not allowed to say anything that would discourage you from joining your workplace pension scheme.
If you or your employer need any help regarding auto-enrolment duties, please don’t hesitate to ask an expert.