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Opt into a pension scheme: pension advice

11th September 2018

Key points:

Your pension is the responsibility of you and your employer. Employers are legally required to implement automatic enrolment for eligible employees. If you wish to opt out of a pension you need to arrange this yourself. There is scope to supplement your pension independently.

 

Your pension scheme

Many of us avoid checking up on the details of our pension schemes. Is it because we think of pensions as boring? Perhaps it’s that we just don’t want to take responsibility for them? Whatever the case, it’s time for that to change. Your pension is for you – implemented for your benefit, no one else’s. By opting in not only do you save into your pension, by law your employer has to put money in too. In fact, workplace pension schemes are the most effective way to save, there is nothing else like them. In this post we have provided an overview on how to opt into a pension scheme.

The pension auto-enrolment scheme

Sign up to this kind of pension is automatic (hence the name). It’s an opt-out rather than an opt-in scheme, so if you do nothing, you’ve technically opted in. Previously fewer than one in three UK adults were contributing to a pension. Auto-enrolment was designed to address this. Check if automatic enrolment applies to you (see below). All UK employers have to put qualifying employees into workplace pension schemes with automatic enrolment (Pensions Act 2008).

As part of their responsibility to implement automatic enrolment, your employer should write to employees who aren’t eligible for automatic enrolment, advising about their right to opt into or join a pension scheme. If auto-enrolment does apply to you, look at your payslip to check if you have already been enrolled. If you have, you will see deductions for your pension contributions on your payslip.

 

Opting into a pension scheme: what your options are

Once opted in you will initially pay 3% of your pre-tax salary into your pension pot. Your employer will top this up then you also automatically get tax relief from the Government as an additional deposit into your pension pot. The resulting pension contribution entailed by standard workplace pension schemes is 5% of employees’ gross salary going into a pension pot every month. You can choose to pay more into your pot yourself.

You will not be able to access this pension pot until at least age 55. Until then it will be held for you by a pension provider. These percentages are due to change in 2019 so be sure to check your pension contribution amount in order to plan for your retirement effectively. So long as you are an eligible jobholder you can decide to opt out of your company’s pension scheme at any point but we do not usually recommend this.

 

Checking eligibility for auto-enrolment

Jobholders must be under a UK contract of employment, aged at least 22 years but below State Pension age (currently 63 years for women, 65 for men) and earning at least £10,000 a per annum. Opting in and joining are not the same. To join a company pension scheme you must be aged 16 to 74 and earning £6,032 or less per year.

 

Company pension schemes

Your company may have implemented their own workplace pension scheme prior to the Government cracking down on this. If so and you have already been paying into this, do not worry – you will not have to pay into two pension schemes . You can only be paying into one workplace pension plan at any one time. You could have multiple former plans (e.g. from previous jobs) operating at the same time however provided that they are “dormant” i.e. you are not making payments. If they are still invested, hopefully they will still be growing for you.

Your employer can choose to pay your pension under ‘salary sacrifice‘. The bonus being that these contributions are made to your pension before tax and national insurance (NI) are taken off. The Government will then give you these savings.

 

There are an array of pension options out there, all with differing tax implications. At IMC we offer a bespoke advisory service because we understand that everyone’s situation is different. Speak to an advisor for guidance on how to make your money work towards a bright retirement.

 

 

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