The state pension was first introduced in May 1908 by the then recently appointed Prime Minister, H.H. Asquith. The Old Age Pensions Act received royal assent in August of that year and the first payments were made to pensioner in January of the following year.
At that time eligible people over the age of 70 were entitled to a maximum payment of five shilling per week – in today’s term’s this is the equivalent to £20.
Comparing the first 100 years of the state pension it’s clear to see why the government’s pension budget is now under strain. In 1908, there were 500,000 pensioners – in 2008 there were 12 million. The £20 per week payment had increased to £90, and the ratio for surviving to age 100 had increased from 1:200 to 1:4. The government decided to push an initiative for us to save for our own retirement to compliment the state provision.
In 2008, a revised Pensions Act was made for all eligible employees to be automatically enrolled into their company pension. The membership of this scheme runs between October 2012 and February 2018 by which time every organisation of any size will need to offer a workplace pension to their workers.
Employees – will you be automatically enrolled?
As a worker you will fall into one of three categories, one of which automatically places you in your workplace pension. This most common category covers all UK workers aged between 22 and state pension age who earn over £10,000 per year.
If this means you – contributions to your pension will begin at the next pay day after the company’s ‘staging date’ (or after a maximum 3-month postponement period if this has been utilised by your employer). Although you have a right to opt-out, this can only be done once you have been assessed for eligibility, i.e. after staging date.
Pension contributions are based on a qualifying band of income (£5,824 – £43,000 for this tax year). Initially you will pay 1% including tax relief, rising to 5% in April 2019. Your employer will pay 1% of your qualifying earnings, rising to 3% in April 2019. These are minimum amounts and you are normally able to increase your contributions if you wish, however your employer is not obliged to follow suit.
Employers – Is your company ready for auto-enrolment?
Choosing a pension scheme for auto-enrolment is a complicated and time consuming process. There are a number of steps your company will need to go through; starting with finding out your company’s staging date, assessing your workforce, keeping them up-to- date with the pension changes, and informing the Pensions Regulator that you have met your obligations. Once the pension scheme is up and running you then need to make contributions and manage opt-outs and new joiners.
Furthermore, there are a number of other issues that you will need to consider to practically implement the regulations:
- Which product solution will best suit
- Which product solution will best suit your company’s needs?
- What will you choose as your default investment and contribution level?
- How the costs and admin burden affect your business?
- How will you retain and maintain your records?
- How will you notify your eligible jobholders?
Can McPhersons help?
The Pensions Regulator has stated that 7/10 employers are seeking advice on meeting their Auto-Enrolment obligations. If you require assistance, Aron Gunningham is our pension specialist and an independent financial adviser. Aron will be happy to help answer your questions and guide you through your duties.
The Pension Regulator has issued financial penalties for company’s who do not comply by their staging date, or for errors in the scheme once it has been setup. Coupled with the admin involved in meeting your duties, it would be prudent to speak to a financial professional.
Although we can be excused for thinking that our National Insurance contributions should be paying for our retirement, inevitably the state provision will not be sufficient. Under the newly formed ‘single-tier’ state pension, retirees in 2016/17 are entitled to a full pension of £155.65 per week. Rarely is this seen as enough to live on. Like it or not, we must find alternative ways to supplement our retirement income. Auto Enrolment, although not a perfect solution, is the Governments way of forcing us to think more carefully about funding our retirement.