Workplace pensions have been getting more mention than they have in a long time, thanks to the implementation of the new Workplace Pension Scheme.
The new scheme began last autumn and automatically enrolled millions of people into a workplace pension. Essentially, the scheme ensures that a percentage of your salary will go towards the pension scheme, which in turn means you are saving for your own retirement.
The enrolment began on October 1st 2012 and though millions joined, not everyone did straight away, while some won’t at all.
Those over the age of 22, earning over £8,105 will have joined the scheme if they are in employment but not paying a pension. However, those employed by companies with fewer than 120,000 employees will not join initially and will do so at a later date. This will occur between now and 2018 depending on your employer and the business at hand.
Initially, around 1% of the pre-tax salary you earn will be placed in the pension scheme – this is taken out before wages are given. Employers then match the amount, though this is taken from them and not from your pay. By the time the scheme reaches fruition in 2018, you will pay 5% of your wage, while your employer will also add 8% into the scheme.
Those who are already in work pension schemes will not be enrolled, though if you pay less than 2% you may need to pay more to meet the minimum threshold by 2012. This may be a matter for your HR department, so ask them.
The money is invested in a pool with thousands of other people’s contributions across a wide range of stocks and shares. In time this will be narrowed down and there will be a number of different strategies to invest in. This may mean you are covered to retire early in the case of sickness or accident at work claims.
Like all pension funds you will have to pay to invest in the NEST pension scheme, and the present charge is 0.3%, though an additional charge of 1.8% is charged annually for the launch of the scheme, though this will be dropped in time – no date is yet set.
You can also opt out of the scheme if you like, though it is advised that you consider your options before doing so. Nest is there to help you save for retirement and with dwindling government pensions, it might be better to have an alternative option instead.
Pension schemes are increasingly a necessity, though have their place and should certainly be considered.
Cormac Reynolds has written a variety of articles on finance and insurance for a number of sites.