Automatic pension enrolment What you need to know

Automatic pension enrolment What you need to know by Michael Cheary Whatever stage of your career youre in, it can often be easy to overlook the future.Whilst it may be impossible to predict exactly how your working life will pan out, planning ahead should never be too far from your mind. What will happen when you hit retirement age? Have you considered all the options? And are you saving enough to afford the retirement you would like?The chances are that you will probably be entitled to the basic State Pension. This can provide you with a decent foundation for your retirement that covers basic living costs, but you may want more.What is automatic pension enrolment?The government has introduced a new law designed to help people save more for their retirement. All employers are now required to enrol their workers into a workplace pension scheme if theyre not already in one.You will be automatically enrolled into a pension scheme at work if you: are aged 22 or over are under State Pension age; are not already in your employers pension scheme; work, or usually work, in the UK; currently earn more than 9,440 a year (in tax year 2013-14);Your employer will contribute to your pension too, and so will the government through tax relief*. This means that unlike other ways of saving, being in a workplace pension really benefits you since youre not the only one putting money in.Look out for a letter from your employer telling you more. But if you decide the time isnt right or you dont feel you can afford the payments straight away, you can choose to opt out. You will be given opportunities to join again in the future.ExampleIf you are currently earning 12,000 a year (1000 a month) gross** basic salary and get paid monthly: You will pay the equivalent of 4% of your gross salary into the workplace pension (40 a month). This is taken directly from your monthly pay. Your employer pays in the equivalent of 3% of your gross salary (30 a month) The government, in the form of tax relief, pays the equivalent of 1% of your gross salary (10 a month).So the total contribution to your pension pot will be 80 a month.Please note this is just an example: how your employers pension scheme actually calculates payments will probably be different.*Tax relief means some of your money that would have gone to the government as income tax, goes into your pension instead.** Gross means before tax and National Insurance are taken offWhen this will happenAlthough the legal change came into effect in October 2012, exactly when an employer will enrol their workers depends on the size of the organisation.Very large employers implemented the change first (late 2012 and continuing into early 2013). Medium and smaller employers will follow over the next few years.To find out more about automatic enrolment into a workplace pension visit gov.uk/workplacepensions.