As auto enrolment slowly but surely becomes the norm among employers, it seems the transition has been relatively smooth so far. However, auto enrolment doesn’t just affect employers, many employees are keen to know their rights and responsibilities within this new pension scheme. So while the transition seems smooth at this point, that’s not to say that there hasn’t been a few bumps along the road, not to mention the bouts of confusion and never-ending questions.
For those of you that find yourselves itching with doubts and questions surrounding auto enrolment – whether as an employer or employee – we’ve pulled together and answered the top ten most frequently asked questions on the topic. These should help you to fully understand the process and address any remaining questions you may have about auto enrolment.
For The Employees
1. What if I don’t want a workplace pension?
Employers have a legal obligation to assess all employees age 16-74 (regardless of earnings, hours worked, preference etc.) and to auto enrol any employees age 22 – state pension age who earn over £10,000 per year (£833 per month/£192 per week).
If you are assessed as an eligible jobholder (because you meet the criteria above) and are auto enrolled, most workplace pension providers will allow you to opt out and give you one month from the date that you are auto enrolled on the account to opt out and be entitled to a refund.
We appreciate that this whole process can be an inconvenience or an irritation for a few people who do not wish to take up the pension scheme however we hope you understand that it is a necessary process that your employer must go through.
2. How much will my pension be worth in the future?
Trying to calculate the value of your future pension fund is both an interesting and worthwhile exercise. Doing so is likely to help you get a better understanding of whether or not you are saving enough money for the lifestyle you aspire to have when you retire.
Recent polls have indicated that only 16% of people in the UK save enough money to maintain their standard of living when they retire and UK workers under save for retirement by more than £11 billion a year (Source: Financial Times)
The Money Advice Service offers free and impartial advice and there is an excellent pension calculator available on their website. Click here to try it out.
The sooner you start saving at the right level, the more comfortable you are likely to be in retirement.
3. How do I make a one off contribution from my salary?
For most members, the current contribution percentage will be 1% of your pensionable earnings (this will increase to 3% for most members in April 2018) however, you may want to increase this should you receive a bonus or want to make a one off contribution to your pension pot. This can only be done by contacting your payroll department.
They will arrange the deduction from your salary, advise your workplace pension provider within the payroll data they send to them, and you will see the contribution appear within a couple of weeks.
You cannot make a contribution larger than the gross salary you earn in any one pay period; in such circumstances , we advise you to stagger the payment over two or more pay periods.
You can make these additional contributions whenever your financial circumstances allow it, making it an incredibly flexible way of boosting your pension funds.
Please note that your employer is NOT obligated to match an increase in contribution percentage or any additional contribution you may make unless you have a contractual agreement with them that states they must do this.
For further information concerning your annual allowance, please visit The Pensions Advisory Service here.
4. What are my options if I’ve left my job?
It’s your employer’s responsibility to advise your workplace pension provider that you have ceased employment and must provide them with a leaving date.
If you are below the age of 55 years your two main choices are:
- Do nothing and leave your pension pot with your provider. In most cases they will continue to send you annual statements and let you know when you can draw your pension; or
- Transfer your pension to another scheme (e.g. your new employer’s scheme if they have one). Visit your providers transfers page to find out more about how to do this.
If you are aged 55 years or older, you can still Do Nothing or Transfer your pension but you are also able to action your retirement options – for what that means, please click here.
5. What are my options once I retire?
With BFN Auto-Enrolment, you can action your retirement options from the age of 55 without having to retire. You can use your pension to help top up your salary if you are still working, to enable you to work fewer hours or to retire early.
For full information on retirement options including forms to complete and where to send them, please click here.
Most pension providers are not authorised to provide advice on what you should or shouldn’t do however below are a couple of common ways of generating a retirement income:
Do nothing or increase contributions
Firstly, just because you’ve reached the age of 55 years doesn’t mean you have to do anything. Most deferred and active members of the scheme remain as they are – some decide they are not contributing enough and increase their contributions (here’s how).
Buy an annuity
This is a traditional method. If your workplace pension provider doesn’t provide annuities themselves you can transfer your funds to a specialist annuity provider who could provide you with an annuity for life or a fixed term.
Under the more flexible rules you may elect to draw some or all of your benefits. You may be able to take your entire pension pot as a cash payment (less income tax) under the Small Fund Commutation where the balance is less than £10,000 (under this rule, 25% of the fund value will be tax free with the rest paid net of basic rate tax (currently 20%). You should seek professional advice as drawing from the fund in this way may also affect the maximum you are then allowed to contribute to another pension plan. It may also affect some state benefits you receive but it doesn’t affect your state pension.
Whatever you decide, you should think carefully before you make any decisions – we strongly recommend you take advantage of the Pensions Advisory Service about the steps to turn your pension pot into income for your retirement.
For The Employers
1. Do I still have to comply with the employer responsibilities if I have an existing pension plan?
Yes. You still have employer duties even if you have a pension scheme that meets the minimum requirements.
2. Can I postpone Auto Enrolment?
An employer can choose to postpone auto enrolment for up to three months from certain dates. One reason you might consider postponing is if you have staff members who you know will stop working for you within three months. You could also use it to align auto enrolment with other business processes.
You can only postpone automatic enrolment from:
- Your staging date
- A staff member’s first day of employment
- The date a staff member first becomes eligible for automatic enrolment.
Remember, if you postpone your auto enrolment, it doesn’t change the staging date itself. You must write to tell the staff who will be postponed within one month of your staging date.
3. Will my pension scheme fulfill all of my employer duties?
A pension scheme is only used for making pension contributions. Employer responsibilities must be carried out by you the employer. Business First Network will provide support by signposting a solution to meet your business needs.
4. What do I do if I’ve been turned down by a pension provider?
Some smaller employers are discovering that the pension provider they had in mind will not accept their business, or could only enrol some of their workers. If this happens to you, Business First Network will signpost you to a solution that will work for your business, no matter what size.
5. How do I communicate the changes correctly to my staff?
Auto enrolment has clear rules about how you should communicate with workers about the process.
It’s important to remember you have a responsibility to provide your workers with some form of written communication detailing their new pension. Therefore, an informal chat isn’t appropriate in this instance. It’s more beneficial to everyone if the communication is clear and takes place at an early stage of the process, so any issues can be dealt with.
There are educational videos, material and automation of staff communication available through Business First Network. These resources will help you get key messages across to your workers simply and will also ensure you comply with auto enrolment legislation.
If you have any remaining questions please do not hesitate to get in touch with us. Remember, with Business First Network you can get free and unlimited access to Auto Enrolment for complete pension protection.