2 min Read
01 Oct 2012

Written by Liam

Over 30 years experience in financial services, residential lettings and property sales. Director of a leading national estate agency chain, until leaving in 2008 to pursue other commercial interests. Vast experience in new business development, business change, management development and business strategy.

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Pension auto-enrolment explained

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What is auto-enrolment?

Auto-enrolment is part of the Government's drive to encourage people to save for retirement. Auto-enrolment will mean workers being automatically enrolled into their employer's qualifying pension without any active decision on their part.

How will this affect employers?

Auto-enrolment will be rolled out from 1st October 2012, with companies with over 250 employees complying by 2014 and all companies having to comply by October 2017.

Under current legislation employers will have to:

- enrol eligible workers into a qualifying workplace pension arrangement

- choose the qualifying scheme they wish to adopt which will be either a defined contribution scheme, defined benefit scheme or the new National Employment Savings Trust (NEST)

What is NEST?

NEST or National Employment Savings Trust is a new simple low cost pension scheme designed specifically for the auto-enrolment regime. Workers will be automatically enrolled into the default fund but there is likely to be a choice of investment funds.

What is an eligible worker?

An eligible worker is an employee between the age of 22 and retirement age and earning above the personal income tax allowance (£7,475 in 2011/12).

How much will my contributions be?

There will be a total minimum contribution of 8% of qualifying earnings (earnings between £5,035 and £33,540). Of this 8% the employer must pay a minimum of 3%, the worker will pay 4%, with a further 1% paid as tax relief by the Government. However, minimum contribution levels will be phased in between 2012 and 2017 with the employee paying 1% at the outset.

Can an employee opt out of their employers scheme?

Yes, employees can opt-out of their employer's scheme if they do not want to participate.
Image: Tina Phillips / FreeDigitalPhotos.net

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