The government’s auto enrolment pension scheme was launched in 2012 as a way to provide further security for Britons upon retirement. By 2018 all employers will be expected to have enrolled every employee over 22 years of age who earns in excess of £10,000 a year in the scheme. But is the scheme really working, and is it sustainable for the long term? That all depends upon whom you ask. As in any government scheme there are several advantages and disadvantages, and many people, both employers and employees, are still confused about it all. Since the programme appears to be here to stay, it is important to clear up some of the confusion.
Click on the link to any number of articles discussing the government’s auto enrolment pension scheme, and the giant mascot/spokes-critter “Workie” graphic that accompanies the article will either lay to rest once and for all the stereotyped image of Brits as being staid and humourless, or finally answer the lingering question as to the whereabouts of those creative geniuses behind the old Monty Python’s Flying Circus television show. Whether it will serve as an incentive to participation in the government’s programme is another matter altogether.
Reaction to the cute (if somewhat creepy) mascot aside, the Federation of Small Businesses (FSB) conducted a survey which found that roughly 45 percent of the million or so small businesses that will be required to enroll their employees in the programme were at a loss to describe what they would have to do in order to comply with the programme’s rules. Even more unsettling, roughly 25 percent of respondents stated that their business could not afford the cost of the programme. Obviously, further clarification is needed if the auto enrolment pension scheme is to function as intended, assurances from the Pension Regulator and the presence of semi-benign looking cartoon characters notwithstanding.
What employers need to know and do:
Once a list of eligible employees is compiled, the employer will need to set their staging date. This can be set to any of the dates provided by the government (see Available early staging dates table), in accordance with the business’ financial year or other scheduled business events, at the owner or responsible manager’s discretion. Once the staging date is brought forward, the employer will need to notify the government that you have brought the staging date forward. Full instructions for notification and completing enrollment is provided at the above link.
If you are an employee who meets the eligibility criteria noted above (over the age of 22 and earning more than £10,000 per year) and are not already an active participant in another pension scheme that meets the government’s minimum standards, you will be automatically enrolled in the pension scheme by your employer. If, on the other hand, you are already enrolled in a qualifying pension scheme, you should inform your employer.
If you are self-employed, you are not required to enroll yourself in the scheme, but it is advisable for you to consider your retirement plans, even if you are young and not earning a lot of money. The earlier you begin your retirement savings, the more financially secure you will be when you reach retirement age, and the more likely you will be to actually enjoy those “golden years” without worry.
Like any large programme, the auto enrolment pension scheme will have a few hiccoughs as it is fully rolled out. Whether you are an employer, employee, or self-employed, you would do well to educate yourself to the requirements and benefits of the scheme, as well as the options available to you. Check back on the programme’s website from time to time to stay abreast of any revisions that might affect your participation, because no matter your position, the scheme will probably have some effect upon your finances, both now and in the distant future.