Auto Enrolment - Trying to improve the living standards of millions

Retirement planning is much in the news and on television with workplace pensions currently going through a period of great change and upheaval. Last October the government introduced Auto Enrolment, which is designed to improve the living conditions of millions of people in retirement.

In short, auto enrolment is a way to ensure that all employees, who are eligible, will be auto enrolled into a qualifying pension scheme with contributions that are high enough to build up a worthwhile pension pot.

What this means is that rather than having to opt in, as currently, they will be automatically included. The reason for the automatic inclusion is to try and significantly increase the number of people not relying wholly on the state pension provision in retirement. From the Government’s financial perspective with life expectancy increasing the payment of the state pension is an ever increasing burden on their coffers.

An eligible employee, is one that is aged between 22 and state pension age and currently earning the equivalent of £9,440 or more on an annual basis. For employees who are not eligible, employers must provide them with the opportunity to opt into or join a suitable pension scheme.

For employees who are already in a workplace pension scheme, employers will need to perform a number of checks to ensure the scheme meets a minimum set of qualifying standards and that employees and employers are making sufficient contributions.

Minimum contributions will initially be 1% from the employee and 1% from the employer, rising to 3% from the employee and 5% from the employer by 2017 (tax relief will form part of these contributions). Both employers and employees will need to allow for the contributions in their budgeting.

As you can tell it is going to be a daunting task to get every employer ‘up to speed’ in time and more importantly a big undertaking in both time and cost by the employer. Some employers will already have received their ‘staging dates’, the date they must have the scheme in place by, and all will have by April 2017.

Employers need to plan and think about their next steps as soon as possible as there are heavy penalties they will have to pay if the scheme is not up and running in time.

As I mentioned at the start, there are huge changes to pensions for both employers and employees. In order to make these changes effectively, make the correct decisions and avoid those fines, employers need to be acting now.

If you are an employer and require further information or advice please contact us now to arrange a meeting, alternatively you can reserve a space at one of Auto Enrolment seminars. The first two take place on Tuesday 1st Of October and Tuesday 8th October at our offices in Southernhay.

For further information please contact Shipman Financial Planning Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@shipmanfp.co.uk. This article is for general information only and reflects the views of the author only. You should seek professional advice in respect of your own circumstances. Authorised and regulated by the Financial Conduct Authority. Shipman Financial Planning is a highly respected professional adviser offering personal service and innovative advice.