Eight million people saving in a workplace pension
The Department for Work & Pensions (DWP) said 7.9 million people are now saving in a workplace pension through auto-enrolment.
This figure has increased by a million in just six months and so far, more than 500,000 employers have auto-enrolled their employees.
However, with the smallest and newest firms yet to reach their auto-enrolment staging date, it is estimated there are still a million employers to go.
Kate Smith, head of pensions at Aegon, said it shouldn’t be forgotten that auto-enrolment only got off the ground because it had cross-party consensus and given the political events recently, momentum in pensions needs to continue.
“All political parties agreed that more needed to be done to reverse the decline in pension savings.
“Mid-way through the review of auto-enrolment there’s a growing recognition that we need to build on its success to keep the momentum going and help more people to save more, enabling people to have greater financial choices in later life. To do this, it’s absolutely vital that cross-party political consensus is maintained.”
Three points you need to know about auto-enrolment
1) Not everyone is eligible for auto-enrolment – employees aged under 22 and over the state pension age and those earning less than £10,000 per year, aren’t eligible. However, if you’re under the age of 22 or above the State Pension age, and you earn less than £10,000, you can still ask to join a workplace pension but you won’t be automatically enrolled.
2) Currently both an employee and employer contribute 1% each so that’s a total 2% contribution. Someone earning the average annual income of £27,000 contributes £211.24 a year and their employer also pays in the same amount, meaning £422.48 is paid into the pension. From April 2018, minimum auto-enrolment contributions rise to a total of 5%, made up of 2% from the employer and 3% from the employee. They increase further from April 2019 to 8% – 3% from the employer and 5% from the employee.
3) With workplace pensions, employees receive tax relief as well as employer contributions. Taking a basic rate taxpayer, for every £800 invested, the government adds £200 to make a total of £1,000 in the pension scheme but as the employer also contributes £1,000, this means a £2,000 pension pot only costs a basic rate taxpayer £800. Higher rate taxpayers receive a greater uplift from tax relief. If they pay in £800, the government adds £200 and workers can also claim a further £200 from their self-assessment tax return meaning a higher rate taxpayer only needs to put in £600 to get £1,000 in their pension (or £2,000 including employer contributions).