Workers must decide on ins and outs of pension schemes

Published on 30/09/2012 00:00

GROUNDBREAKING reforms that will see millions of employees automatically enrolled by their employers into a qualifying pension scheme finally come into force tomorrow.

Between now and 2018, the new rules will slowly sweep up the vast majority of workers in the UK. From tomorrow, employees at the biggest firms – those with more than 120,000 people – will be placed in their employer’s pension scheme.

Auto-enrolment legislation forces employers to sign up the vast majority of their employees into a qualifying pension scheme. The aim is to encourage workers to take more responsibility for saving for retirement and to begin making contributions towards their pension as early as possible in their careers.

Research published in July by the Department for Work and Pensions showed that almost 11 million people were not saving enough for their retirement and would have ncomes below target levels in their retirement.

Further research shows pension saving has fallen across all age groups, with the decline being steepest among those aged 22-29, falling from 43 per cent in 1997 to just 24 per cent today.

Most people currently have to opt in if they want to be in a pension scheme, but the new legislation turns this on its head. If you do not wish to be a member, it is up to you to opt out. You will be given a one-month opt-out period by your employer. If you miss this window, the money that has been invested into the pension on your behalf could be locked in there until you retire.

The bottom line is that once auto-enrolment is fully up and running, employees enrolled in qualifying schemes will be forced to pay a pre-determined portion of their salary into the pension. This could be a significant amount of money, and it is therefore essential to make the right decision about opting in or out.

Even if you’re not among the first wave being auto-enrolled, it’s well worth finding out when and how you will be affected, and employers have a duty to provide staff with information on this.

The first thing you need to do is find out when you will be automatically enrolled into your employer’s qualifying pension scheme. The deadline for employers to comply with the new legislation – known as the staging date – will depend on the size of the firm you work for.

The table alongside this article shows the staging dates for firms down to those with 250 employees. For smaller firms, the full list can be found at: www.thepensionsregulator.gov.uk/employers/staging-date-timeline.aspx.

Your employer has a duty to tell you about the new legislation. If they have not already done so then they should be doing this as their staging date approaches.

Unfortunately, many employers are not starting their communication programmes early enough: research by Scottish Widows recently found that more than half of the almost 19 million workers in the UK still know nothing about auto-enrolment, including 56 per cent in Scotland.

The government also has a part to play in publicising the new legislation and it has just launched an advertising campaign on auto-enrolment, which will help to raise the general awareness level about the changes taking place to workplace pensions and encourage people to better engage with their employers on this subject.

If you have not had clear communications from your employer about auto-enrolment, then it would be worth asking them when you can expect this.

Whether your employer uses online channels such as e-mail, intranet and social media; or more traditional channels such as printed literature and face-to-face seminars, they have a duty to inform you of what is going on.

This will be more difficult for employers whose workforces are predominantly field-based or with whom there is little structured contact. However, this should not be a reason for employers not to explore the most effective means of communication and to implement a strategy accordingly.

If your employer does not explain the changes effectively, or you do not understand them, you could end up paying into a pension scheme you do not want to be part of.

If you decide to stay in, it is then crucial to make sure your money is being invested appropriately and is working as hard as it can for you. Again, this is something your employer should communicate with you about as well as providing you with information on where you can find professional advice to help you make the correct decisions.

According to recent figures from the Department for Work and Pensions, about 600,000 more people will be saving into a workplace pension by the end of the year because of auto-enrolment.

As more staging dates pass and more employers are required to auto-enrol their employees into qualifying schemes, this figure is forecast to hit 4.3 million by May 2015.

Your employer has an obligation to make sure you know about the changes. If they do not have plans in place to do this, then it is up to you to ask why – because it will be you, ultimately, that pays the price.

Karen Theobald is principal market leader at Buck Consultants in Edinburgh