NEW workplace pensions designed to help people who are not voluntarily saving for retirement take effect in October, writes Harry O'Connor, Wealth Management Consultant, Pearson Jones Plc in Bishop Auckland.
From October 1, business owners, starting with employers with more than 120,000 staff, are legally required to start auto enrolmentAE)and pay funds into a workplace pension for all eligible staff who choose not to opt out.
This is highly significant and the Department for Work and Pensions (DWP) has described it as the biggest shake-up in UK pensions for more than a century.
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The DWP estimates that 380,000 workers will be signed up in October; 420,000 will be enrolled by the end of November and 600,000 by the end of this year. This is expected to grow to 4.3m more people by May 2015.
However, the estimates come as figures from the Office for National Statistics (ONS), show that the number of people actively paying into a workplace pension scheme dropped for a third consecutive year in 2011.
The ONS said around 8.2 million people were active members of pension schemes at work, down from 8.3 million the previous year, with the dip coming from the private sector which has been badly hit by the economic downturn with pay freezes and part-time working.
Under AE, bosses will eventually contribute three per cent of earnings, individuals will contribute four per cent of earnings, and there will also be one per cent of tax relief to make up a total eight per cent contribution each year.
Employees are able to opt out of the change, but they will not receive the extra contribution from their employer or the tax relief, or be contributing to a workplace pension. They will be re-enrolled every three years and be given the same options.
If you are a business having to implement auto-enrolment, speak to an independent financial adviser.
Harry O'Connor, Pearson Jones plc, Bank Chambers, 9 Kensington, Cockton Hill Road , Bishop Auckland, County Durham, DL14 6HX Tel: 01388 458 919.