The changes to the pension laws in the UK which are due to be rolled out by the Government starting this year have not been greeted with universal delight by the business world. Mainly because they involve considerably greater commitment by business owners, both financial and administrative, to make them work. Understandably this is a concern for small businesses in particular because many are struggling to keep afloat in a difficult economy making any further financial outgoings a serious burden, but the aim is to get more people to prepare early for their eventual retirement – something which is badly needed.
The changes revolve around something known as the auto enrolment pension, which essentially means a pension scheme that, those who are eligible for, will be automatically signed up for rather than choosing for themselves whether to do so or not. Clearly it is felt that not enough employees – particularly younger ones – are presently opting to plan for their futures as anyone over the age of 22 will be eligible for the scheme. Under pension auto enrolment plan the eligible employees will still have the choice of opting out, but will have to take this option themselves – whereas currently they have to decide to opt in to a pension fund themselves.
The national pension scheme that has been set up by the Government to handle to auto enrolment pension plan is the National Employment Savings Trust (NEST), and under this plan businesses are expected to contribute towards each employee’s pension which is part of what has made many business owners uneasy about the new plans. If your business already has a private pension fund set up it is not necessary to shut this down and use the NEST instead, but the existing pension fund will have to operate on an auto enrolment basis from this year for all employees who fit the eligibility criteria. Furthermore, you will still have to contribute the minimum 3 percent of the qualifying earnings for each employee who chooses to remain within the scheme rather than opting out.
10 replies on “What is an Automatic Enrolment Pension?”
let’s face it, we all grow old and pension is definitely a need… to take care of our needs when we are not able to do anymore. Yahweh bless.
There may be PROS and CONS in this automatic pension enrollment because some don’t agree with the idea but if ever the company is sincere enough to give benefits like pension to the employees, the agreement should be made clear. I was unfortunate to be employed with a company with subsidized retirement plan (part of the amortization was being deducted automatically from my salary) but when it filed a petition for rehabilitation due to cash flow problem… I was forced to resign and my retirement was gone forever.
This is the kind of pension payment we have and it’s really beneficial, the bank and government handles the money so every “pensionist” received theirs when time comes.
I’ve never delved much into pension plans, but I don’t quite like the idea of the automatic enrollment pension. I know it’s important to save up for retirement and for the future, but I think it’s best to give people an option.
This is so complicated but I hope they will come out the best for the employees otherwise it will be wasted.
I think a good pension plan is needed by everybody in the workforce. Younger people disregard this so automatic enrollment would be really nice for the employees.
My first time to hear about automatic enrollment pension. In any case, business security is an issue that needs careful attention and monitoring.
I have a question.. Is the Automatic Enrollment Pension only applicable to actual office employees? How about Freelancers?
Thanks for asking. Yes, it is. It is not applicable to self-employed or freelancers.
I guess this is really intended for the employed sector which are good. Having an AEP, is a good move of the government.