We all need a pension for when we retire, otherwise we may have insufficient income to help take care of ourselves in retirement, but unfortunately, in recent years a combination of low wages and rising living costs have meant many people (especially those on a small salary) are failing to put money into their pensions.
To combat this, the government has been rolling out workplace pensions, whereby workers save a portion of their earnings into a pension pot operated by their employer. They're an easy way to get a pension fund together before retirement, and can offer great benefits when compared with privately managing your own pension.
Who can get one?
Whether or not you can pay into a workplace pension depends on your age, earnings and employment status.
If you work in the UK, are aged between 22 and State Pension age, and earn more than £10,000 each year, you will be automatically enrolled into a workplace pension scheme by your employer by October 2018, with the largest companies doing so first. By this date all employers, however small, will be required to enrol employees that match these criteria onto a scheme.
If this hasn't happened yet, you can ask your employer when they will begin enrolling you – known as the staging date.
If you earn up to £10,000, or you are below age 22 or have reached State Pension age but are under 75, you can ask to be enrolled on the scheme, but you won't be automatically enrolled.
How much is paid in?
The amount added to the scheme – usually a defined contribution scheme – depends on a variety of factors. All amounts added must lie within your qualifying earnings (earnings from employment, before National Insurance Contributions and income tax payments are deducted). For the 2016/17 tax year, this amount is between £5,824 and £43,000.
Firstly, your contributions. These can be as large a percentage of your wages as you'd like, but it must be at least 0.8% of your qualifying earnings, rising to 2.4% on April 6th 2018, and 4% on April 6th 2019 (the latter will only occur subject to future parliamentary approval).
Your employer must pay 1% of your qualifying earnings currently, rising to 2% on April 6th 2018, and 3% on April 6th 2019. If you earn below £5,824 you are not entitled to receive employer contributions, and any earnings above £43,000 are not counted towards your qualifying earnings. Your employer can choose to pay more if they wish to do so.
You'll also earn tax relief on your contributions from the government of 0.2% of your qualifying earnings until 6 April 2018 rising to 0.6% until 6 April 2019 then rising to 1.0%.
What kind of pension will it be?
While most workplace pensions are defined contribution schemes, they can conceivably take the form of any variety of personal pension, including defined benefit schemes (also known as final salary schemes), group personal pensions and stakeholder pensions.
Take a look at our guide into the varieties of pension that exist, and feel free to ask your employer for more information on the particular type of scheme they've decided to operate. You should also ask how much they'll contribute, how you can check on the state of your pension, how your money will be invested and when you can withdraw.
Workplace pensions are a nifty, easy way of saving away a pension that'll boost your retirement and later life. Make sure to do your research – you'll certainly benefit from looking into the specifics of your employers' particular scheme.
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