The auto enrolment scheme which requires employers to provide a workplace pension for their workers is being expanded this year, so Britons may want to read up on how the scheme works.
Auto enrolment means if a person starts to work for an employer and they earn above a certain amount, they will automatically be signed up to a pension scheme organised by the employer.
At present, a person has to be at least 22 and under state pension age to be eligible for auto enrolment, although this is being extended to workers aged 18 and over this year.
The person has to earn at least £10,000 a year, for the current 2023/2024 tax year to be auto enrolled.
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A person who earns above £6,240 but less than £10,000 can request to join the company pension scheme so they can set aside part of their wages for their retirement.
The minimum amounts that have to be contributed are five percent of the worker’s salary, from the worker, which is matched by three percent from the employer.
Some pension schemes allow the employers to pay in more than the minimum amount meaning the worker may be able to pay in less, as long as the eight percent total is paid in.
There may also be the option for the worker to increase their contributions above the minimum amount.
A person should approach their employer to ask if this is possible and how to arrange this. A person can choose to opt out of the workplace pension scheme once they have been enrolled.
However, this does mean they will lose out on the employer’s contributions towards their pension, as well as tax relief from the Government.
A person eligible for tax relief on their pensions can get up to 100 percent tax relief on contributions up to the same amount as their annual salary.
Another option a person may want to consider is going for a salary sacrifice form of pension contribution.
This involves the worker giving up part of their salary with the employer paying this straight into their pension.
The benefit of this is the contributions are made before tax and National Insurance are deducted from a person’s salary, meaning they will pay a reduced amount of income tax and National Insurance.
However, this may affect a person’s state pension entitlement, as a person’s National Insurance (NI) contributions go towards their state pension.
A person typically needs 35 years of NI contributions to get the full new state pension, of £203.85 a week.
An individual may want to check their NI record or speak to an advisor before opting for salary sacrifice, to determine how their state pension payments would be affected.
Recent research from NOW: Pensions found 86 percent of young adults are supportive of auto enrolment being extended to people aged 18 and over.
Some 89 percent of students surveyed said pensions should be a bigger part of the national curriculum.
The current age when a person can access their pensions is 55 while the state pension age is 66.
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