How Auto-Enrolment Pension Schemes Work

There are a whole host of pensions schemes available which can make the process of preparing for retirement somewhat complicated, particularly as various schemes will suit individual situations better than others. One of the easiest routes to put money aside for later life is to enrol in a workplace pension which is arranged by your employer. There are a number of different categories of workplace pensions which include occupations, works, company or work based. When enrolled in such a pension, a small percentage of money is automatically taken from your pay and put into the pensions scheme which is then paid to you as an income during retirement. Usually your employer and the government will add money into the scheme as well and generally the employee cannot remove any money from the fund until they are least at 55 so as to keep it all there to provide security during retirement.

Up until now many people had been missing out on a suitable pension scheme because they either failed to apply to their employer’s themselves or they were not offered the option of enrolling in a workplace scheme. The new compulsory auto-enrolment aims to eradicate this problem once and for all to make sure that everyone is prepared for retirement. It is now an employer’s responsibility to automatically enrol an eligible employee into a workplace pension scheme, into which the employer will have to make a minimum contribution too.
Eligible employees are workers who are earning £8,105 or more per annum and who are 22 or over. It is possible to enrol into the scheme if you earn less but in these circumstances your employer does not have to contribute. Each worker has to contribute a minimum of 8% of all their salary, 3% of which their employer must pay. If the employer chooses to pay more, the worker only has to make up the difference.

Introducing auto-enrolment is not a small matter which is why it is being phased into companies gradually, starting with larger companies initially…

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