What is an automatic enrolment pension?

From the 1st of October 2012 the government is set to put in place a new law whereby employers are obliged to enlist workers on a pension scheme. This differs from the current arrangements which encourage the worker to ‘opt-in’ to the scheme. ‘Opting-out’ means the employee must directly decide to stop their scheme which could encourage the creation of as many as 10 million new pension plans.

Automatic enrolment thrusts the pension question directly into the laps of the employees and encourages them to utilise a private scheme laid on by the company or a National Employment Savings Trust (NEST) scheme for those companies without pension options. Check out http://www.nowpensions.com and see what they can do for your company.

If you are over 22 years old and under pensionable age, you work in the UK, and you earn more than £8,105 per year, you will be set aside for the scheme. It’s clear that this will incorporate a swathe of the UK’s working public who may never before have given pensions too much thought.

Often middle to low earners don’t have the ready money to contribute to a scheme and this is the section of society where much of the government’s future problem will lie. These people will represent a big benefits burden for an already overstretched state so making contributory savings provisions is essential in the eyes of government. Many predict the end of state pension in the foreseeable future so any personal provisions we make now could be nothing short of a lifeline in the years to come.

These pension funds will be subject to the usual dangers and inadequacies inherent in any private pension funds but could nevertheless be a worthy addition to the average citizen. The employee will initially be asked to contribute just 2% of their monthly income to the scheme, rising to 8% after 2018.

You can opt out of the schemes but you will be re-enrolled every 3 years, meaning the question of pension provisions will be glued to your financial radar instead of brushed under the carpet as it often is now.