New pension legislation called auto-enrolment was passed by the government in 2008. Employers must mandatorily enrol eligible workers into a qualifying workplace pension scheme. A workplace pension scheme is a way of saving for your retirement through contributions deducted directly from your wages. It is a way of saving for your retirement that is arranged by your employer and is made up of the employee and employer’s contributions.
Workplace pensions may also be known as company, occupational or work-based pensions.
How Does It Work?
From October 2012 employers are obligated to automatically enrol the vast majority of their employees into a workplace pension scheme, they are also required to make a certain level of contribution. A percentage of your pay is automatically deducted from your wages every payday.
3% of an employee’s ‘qualifying earnings’ is the minimum employee contribution whilst the minimum amount your employer has to pay is 2%. By 2019 these contribution levels are set to rise to 5% and 3% respectively. You have the option to opt out, but it would mean losing out on employer and government contributions.
Who is Eligible?
Employees working in the UK aged over 22 but under state pension age earning at least £10,000 per year are those who qualify and must be auto-enrolled into a workplace pension scheme.
It is important to apply for a workplace pension scheme as early as possible as the amount you will receive on retirement is usually based on the number of years you’ve been a member of the scheme.
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