Are you prepared for auto enrolment?

As of October last year, the government’s new auto enrolment pension legislation came into play.  It looks set to be one of the most important pieces of workplace legislation in recent years, with the lofty aim of tackling the pressing pension deficit.  This means it will encompass a huge swathe of UK workers, as highlighted in the eligibility criteria:  You must be at least 22 years old and beneath state pension age; earn upwards of £155 a week; work or ordinarily work in the UK.  If this is you, you’ll be automatically ‘opted in’ to a pension at some over the next 4 years.

The legislation will affect Employees and Businesses to varying degrees with many Businesses naturally worrying about red tape, enforced contributions and HR requirements; but resources like the DWP can help to allay these anxieties.

Roll out is staggered and each individual business will receive a letter with their staging date 18 months prior to activation.  Big business has been the first to take on the new legislation with 9 large companies initially subject to the moves.  If you have between 50 and 249 staff you will need to be in line between April 2014 and April 2015 and businesses with fewer than 30 eligible employees won’t be included until around 2017.  This gives less equipped businesses more time to come to terms with the logistics and demands of auto enrolment.

Businesses can either carry on with their incumbent pension schemes if available, or they can arrange schemes through providers like http://www.nowpensions.com/, which have diverse investment strategies which aren’t merely fixed on equities and bonds.

Schemes must meet minimum contribution requirements for both employee and employer which are initially minimal with the onus on the employee.  In 2012 total contribution required is 2% constructed of 1% from the employer and 1% from the employee; by 2016 the total contribution will reach 5%, that’s 2% from the employer and 3% from the employee; in 2017 the minimum contribution will hit 8%, 3% from the employer and 5% from the employee.

Businesses should look to use pensions to incentivise their staff and promote loyalty.  Employees retain the right to opt out, but should perhaps see the private pension as one of the best ways to make financial provisions for their future.