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2018 marks the first year that it is compulsory for employers of all sizes to offer a workplace pension scheme. Workplace Pension Reform started rolling out in April 2012 and has reached the final stages of the initial plan. With the foundation set, the government is already mapping out the next phases of the programme.
What is auto enrolment and who qualifies?
Auto enrolment requires employers to automatically enrol all employees in a workplace pension scheme. Employers are also required to contribute to the pension but the exact amount that is paid in is dependent on the plan that has been chosen.
Automatic enrolment is mandatory if you’re classed as a worker, are aged between 22 and state pension age, earn at least £10,000 annually, and “ordinarily” work in the UK. There are a number of circumstances where employers don’t have to automatically enrol employees, but pensions are still available to join.
What’s next for auto enrolment?
The first phase of the rollout has been successful and the government has a few ideas to update and expand it further.
Firstly, in April of this year, the standard contribution rate will increase from 2% (with employer contribution at 1%) to 5% (with employer rate at 2%) and will increase to 8% (3% from the employer) in 2019.
More improvements are expected for the mid 2020s. The first of which is dropping the minimum age from 22 to 18, adding 900,000 people to the nine million already enrolled.
Next, to increase overall contributions, percentages will be based on all earnings once the minimum of £10,000 (as of 2018/19) is reached. So the lower earnings limit will be removed, but the upper earnings limit (£45,000 in 2017/18 and £46,350 in 2018/19) will still apply.
Lastly, the government is planning on targeting the self-employed population to deduce the best ways to increase pension savings. Even though they make up 15% of the workforce, as of 2015/16, only 16% of this community contributed to a pension, signalling a significant coverage gap.
Despite all the government’s attempts to make automatic enrolment an effective and profitable endeavour, they have made it clear that individuals will still need their own retirement plans to bridge the pension gap. Speak to an expert financial adviser to ensure that you have a solid plan in place to live comfortably after your working years are over.
Additional sources:
https://www.gov.uk/workplace-pensions/joining-a-workplace-pension