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Auto enrolment: top employee questions answered

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
14/06/2016

Data from The Pensions Regulator reveals nearly 6.3 million workers have begun saving as a result of auto-enrolment and nearly 143,000 employers have complied with the legislation.

Auto enrolment was first introduced in 2012 and made it compulsory for employees to enrol their staff into a pension scheme. It is being phased in over a six-year period.

There are still more than 1.7 million smaller employers employing around 3.7 million people, who are yet to reach their staging date, according to NOW: Pensions, the workplace pension provider.

And there’s still a fair amount of confusion among employees, says its chief executive Morten Nilsson.

Here, Now: Pensions responds to the top five most frequently asked questions:

  1. I want to opt out, why can’t I do this before I’m enrolled?

The legislation prevents anyone from opting out until after they have been auto enrolled and have been given their enrolment letter. If you then opt out within the opt out window of a month you will get a full refund of contributions directly from your employer, after this there is no guaranteed refund of contributions.

  1. Will I be re-enrolled every three years?

Yes. Under auto enrolment legislation, every three years employers must re-enrol eligible jobholders who have opted out, ceased active membership of their pension scheme or reduced their pension contributions below the minimum level.

  1. How much auto enrolment minimum contributions and when will they increase?

Last year, the Chancellor George Osborne announced delays to minimum contribution rate rises for auto enrolment.

Under previous plans, minimum contributions would have risen from 2% of qualifying earnings to 5% from October 2017 and to 8% from October 2018.

Now the rise to 5% will take effect from April 2018 and to 8% from April 2019 (subject to Parliament approval).

 

Date Employer minimum contribution Total minimum contribution
Before April 5 2018 1% 2% (including 1% staff contribution)
April 6 2018 – April 5 2019 2% 5% (including 3% staff contribution)
April 6 2019 onwards 3% 8% (including 5% staff contribution)

 

  1. Are auto enrolment contributions sufficient?

In general, individuals will need to contribute more than the minimum level at which they are likely to be automatically enrolled to have a good chance of achieving an adequate retirement income. It’s also important to remember that auto enrolment minimum contributions are based on a band of earnings which means that for the 2016/ 17 tax year the first £5,824 of an employee’s earnings does not count for the purposes of auto enrolment and anything above £43,000 isn’t included either. This has a highly corrosive effect on savers’ pension pots and means that 8% is never actually 8% as contributions aren’t based on every pound of earnings.

  1. What happens to my money when I change jobs?

One of the side effects of auto enrolment will be a proliferation of small pension pots. At the moment, unless you decide to transfer your money, it will remain invested with the existing provider.