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1 October this year is a very significant date, as it signifies the start of auto enrolment being rolled out to all employees who are between the age of 22 and state pension age and earning more than £8,105 per year.
Over the next five years there will be 40+ dates when Auto Enrolment will be introduced. From an employee point of view, you will be told when this will be happening by your employer and how much you will need to pay.
As the employer, the emphasis is on you to put plans in place to make sure your scheme is established and registered with The Pensions Regulator on or before your allotted timescale (for exact dates please see www.thepensionsregulator.gov.uk)
Initially both employee and employer will start off by paying 1% (of gross salary) each into the scheme, however, from October 2017 this will increase to 2% for employer and 3% for employee and after October 2018 this will increase to 3% for employer and 5% for employee (inclusive of 1% tax relief).
The reasons behind the automatic enrolment of eligible workers into work-based pension arrangements have been well documented; with more people living longer, there's a stark choice between saving more, working longer or retiring poorer, none of which are very attractive options.
The UK has the biggest retirement saving shortfall per person in Europe. Information released by Aviva shows a current shortfall of £318 billion, but according to recent commentary by the International Monetary Fund, Britain could face up to a £800 billion shortfall by 2050 due to ageing population. This makes compelling reading and highlights the reasons behind this major issue - not saving enough to get the income we'd like in retirement, not to mention the increase in state pension age which we have already seen take effect in recent times. This illustrates the need to introduce a scheme to bridge some of the retirement income gap.
To ensure that you plan the most effective pensions strategy for your business or personally, speak with the experts. At Armstrong Watson we have a wealth of experience in personal and employment based pensions and we will be pleased to discuss your particular requirements with you.
I will leave you with a thought on the intended roll out of Auto Enrolment and pensions in general:
The best way to save for retirement is to get someone else to pay into your pension for you. A company pension means that your employer is effectively paying for you to not to have to come into work one day. How good is that? In a nutshell, that is what Auto Enrolment is all about.
Investment values can fall as well as rise and you may get back less than you invest. Past performance is not a reliable indicator of future results.
Financial Planning Consultant
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