Pension auto-enrolment scheme

danit

My employer has asked me if i wish to opt-out of the pension auto-enrolment scheme.

I have no details surrounding the pension deal my employer is opting for or offering me.

1. Is it a good idea to be part of the scheme

2. What questions should I be asking my employer in regards to the pension enrolment scheme?

I currently do not have a pension arranged, recently changed jobs (About 8 months) ago and previously always had a reasonable pension provided for me. Do I go with this solution or go private/another pension type investment?

bigadaj

Get some details from your employer. They will have to contribute so opting out isn't sensible for most people, See what employer has in place, they may contribute to a pension you arrange separately.

mania112

The NEST Auto-Enrolment is actually quite an expensive pension. They advertise as having AMC's of 0.5%, but they hide the additional 1.3% they need to charge members to pay for setting the whole thing up (and that will take many years to complete).

If you opt-out are your employer saying they will contribute to another scheme on your behalf?

If yes, perhaps a cheaper contract is more beneficial (but make sure you have it in writing that your employer will continue to contribute).

If no, better to stay in the auto-enrolment to benefit from free money from your company, right?

- Auto-enrolment shouldn't have any baring on your salary or future career options, but worth having an 'unofficial' chat with someone to see if staying in the new scheme will affect your future payrises (can they still afford to provide annual inflation payrises, for example).

dunstonh

I have no details surrounding the pension deal my employer is opting for or offering me.

Might be a good idea to ask them. Especially on how much they are contributing.

1. Is it a good idea to be part of the scheme

99% of the time yes. It is free money.

Do I go with this solution or go private/another pension type investment?

one has free money. The other does not.

mania112

dunstonh wrote: »

one has free money. The other does not.

I think some employers (mine for example - i think) are going to offer an alternative which they will pay into.

Pro: Cheaper contract, flexible contribution structure.

Con: Flexible contribution structure

dunstonh

I am not sure the OP is on about NEST or not. It only mentions auto enrolment. That could be to scheme other than NEST. Hopefully it is as decent employers would prefer to use things other than NEST.

NEST_Representative

danit wrote: »

2. What questions should I be asking my employer in regards to the pension enrolment scheme?

The type of questions you might want to ask about the scheme they are using include:

What are the charges?
NEST's charges work out at broadly equivalent to 0.5% AMC, which is comparable to other low-charge schemes, but is broken into two parts. We take a contribution charge of 1.8% and our overall annual management charge is 0.3%.

From a contribution of £25 the 1.8% contribution charge would be 45p. If your overall pot is worth £5,000 at the end of the year, your annual management charge (AMC) would be equivalent to £15.

If you stop contributing for whatever reason, you will only pay the annual management charge.

How will your money be invested?
You might have a choice of funds which you can choose from to suit your needs/preferences. Most schemes will also have a default fund that you will be put into if you don't make any other choices.

With NEST, our default funds are designed around the age at which you think you will want to retire. So if you're five years from retirement we'll manage your money in a particular way, making sure it's ready for you to take it out. If you're 20 years from retirement, we'll manage it differently and focus on growing it as much as possible. We also have a few other fund choices including a lower-growth fund and a higher-risk fund, an ethical fund and a sharia fund.

What happens to your pot when/if you leave that job?
It is not possible to transfer your funds out of NEST at the moment but you will keep your NEST pot for life. If you move employment, become self employed or stop working, you can continue to contribute to your pot if you want, you can still access your account and see how it is perfoming online. If you move to another employer and they are also using NEST, you won't have to set up a new account, your new employer will just start contributing into your same pot.

With other schemes you might be able to transfer your money to a new scheme but you should always check the charges of the new scheme first to make sure that would be the best decision.

You should also ask what your employer will be contributing and what you are expected to contribute.

The minimum required by law at the moment is for a total contribution of 2% of your salary, of which at least 1% must be paid by your employer.

If your employer is paying only the minimum then you will need to pay 0.8% of your salary at the moment because the extra 0.2% is made up through tax relief.

Your employer can choose to pay more though, so you may be getting an even better deal.

NEST_Representative

mania112 wrote: »

The NEST Auto-Enrolment is actually quite an expensive pension. They advertise as having AMC's of 0.5%, but they hide the additional 1.3% they need to charge members to pay for setting the whole thing up (and that will take many years to complete).

See the previous post in response to this. Our charges are comparable to most other low-charge schemes. In a majority of cases, our charging structure is equivalent to a single 0.5% AMC and is far cheaper than the stakeholder pension cap of between 1% and 1.5%.

For a more detailed breakdown of how it all works you can see a briefing paper on it here: http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/low-charges-for-future-members-of-NEST,PDF.pdf

dunstonh

See the previous post in response to this. Our charges are comparable to most other low-charge schemes. In a majority of cases, our charging structure is equivalent to a single 0.5% AMC and is far cheaper than the stakeholder pension cap of between 1% and 1.5%.

Most group or occupational money pension schemes are far lower than the RU64 levels. Indeed, most advised pensions are nowadays. I frequently set up pensions on transactional cases with a TER of under 0.25% p.a.

That said, I have no issue with the charges with NEST. My concerns are more to do with the employers using NEST who are more likely to use the relevant earnings band for contributions. Whereas those using group personal pensions or COMPs would use pensionable earnings (typically basic pay. May or may not include overtime/bonus). That is not a fault of NEST and it will be interesting to see in time if companies using NEST are doing the minimum or going above the minimum.

jamesd

danit wrote: »

1. Is it a good idea to be part of the scheme

That depends on the scheme and your age.

There are currently just two schemes where I'd suggest that a younger person not join the scheme. NEST is one of them, Morrisons is the other, both because of some bad features of those two specific schemes. So for the vast majority of cases I'd suggest joining.

danit wrote: »

2. What questions should I be asking my employer in regards to the pension enrolment scheme?

Start with these:

1. What is the name of the pension?
2. What insurer or other company is providing it?
3. If NEST is mentioned, "Why did you pick the lemon of the auto-enrolment bunch instead of a good one like Now: Pensions and can you use that one or one of the others instead?" If the answer is just that they didn't know any better, ask for more help getting a better option if they are willing to be helped to get their employees a better deal.
4. How much is being contributed by you, by me and by tax relief?
5. What investments are available?
6. What are the charges, monthly and for each investment and who gets paid out of those charges?
7. When can I transfer money out of this pension pot to another pension if I don't like the investments for some or all of my money? What is the cost for doing this? Can I still remain in the scheme after transferring all or some to another scheme?
8. Can I transfer other pension pot money into the scheme?
9. What are the limits on how much I can pay into the scheme each year?
10. Are contributions done by salary sacrifice, before tax and NI is taken off?

danit wrote: »

Do I go with this solution or go private/another pension type investment?

Not possible to tell at the moment, we really need the answers to get some idea of whether this is a good deal, an average one or one of the fortunately few lemons.

bigadaj

Just for clarifications and confirmation this level of TER would relate to the pension wrapper. In most cases there would be additional fees levied on the investments contained within them which needs to be made clear.