Opted out of auto-enrolment? You’ll be given a second chance
Large employers began automatically enrolling their employees into a workplace pension over three years ago and now they must go through ‘automatic re-enrolment’.
Under these rules, companies must automatically enrol eligible staff (those aged between 22 and State Pension age and earning at least £10,000 per year) every three years from a firm’s staging date – the period when they began the process.
This means that any staff who opted out of the pension scheme previously will be signed up again and if they wish to stay out, they have a one month window to do so.
On average 10% of workers have actively opted out of auto-enrolment. Now pension management firm Aegon is urging people not to lose out a second time round as they could be missing out on thousands of pounds of contributions from their employer and the government.
Kate Smith, head of pensions at Aegon, said someone with average earnings of £27,000 a year will have lost a minimum of £635 in employer contributions and £127 in tax top-up from the government.
“Effectively workers have ‘saved’ themselves £508 in pension contributions but have lost out on a total of £1,270 in their pension, taking a pay cut.
“Some employers will be offering to pay more than the automatic enrolment minimum. Anyone opting out of such a scheme could have lost thousands of pounds.”
The minimum pension contributions under auto-enrolment are currently 1% from the employer and 1% from the employee including tax relief, based on a band of earnings.
Minimum automatic enrolment contributions rise to a total of 5% of band earnings in April 2018 (2% from the employer, 3% from employees including tax relief) and 8% in April 2019 (3% from the employer, 4% from employees, 1% from the government).