Is this a benefit?

utigers

Hi there - I am going to a meeting and these new pension schemes are to be discussed and it looks like they will be sold to us as a benefit/perk. Possibly to cover over lack of pay rises etc......

In my mind it would only be a benefit if they were to contribute more than the minimum required otherwise we are the same as everyone else.

I dont no what pension type/options are out there for employers to choose from, so could someone please tell me what the minimum requirements are? From a contribution basis?

If we are being offered the absolute minimum I just want to be armed with the correct information prior to the meeting.

Thanks

dunstonh

I dont no what pension type/options are out there for employers to choose from, so could someone please tell me what the minimum requirements are? From a contribution basis?

It is up to the employer what they contribute as long as they match the minimum. It is up to the employer who they chose to provide the pension.

On your staging date (the date they have to have to offer it) the employer will have to automatically deduct 1% of an employees "band earnings" and pay this into the pension scheme. At this stage the employer will also have to contribute 1% of an employees "band earnings" unless the employee "opts out".

In October 2017 employers will automatically deduct a minimum of 3% of an emplyees band earnings and will have to pay 2% themselves. This will increase again in October 2018 to 5% and 3% respectively.

utigers

Thanks for that Dunstonh. So anything more than 1% at this stage would be a benefit.

Band earnings do you mean basic pay? i.e. The employee couldnt include bonus/commission into their 1% if they wanted too?

I know they need to start these things slowly but 1% is such a low amount for both parties to contribute when you work out the £.

JoeCrystal

utigers wrote: »

Thanks for that Dunstonh. So anything more than 1% at this stage would be a benefit.

Band earnings do you mean basic pay? i.e. The employee couldnt include bonus/commission into their 1% if they wanted too?

I know they need to start these things slowly but 1% is such a low amount for both parties to contribute when you work out the £.

I agreed. It is extremely low, I would even argue that 3% is also low as well. Hopefully the Government will increase it to more reasonable levels of contribution.

As it is, the band earning Dunstonh mentioned

This is currently between £5,668 and £41,450 a year for the 2013/14 tax year. Qualifying earnings include a worker’s salary, wages, overtime, bonuses and commission, as well as statutory sick, maternity, paternity or adoption pay.

In other word, supposing you earn £12,000 in a year. Then the contributions are calculated on the qualifying earning. The auto enrollment contribution gets calculated on £6,332 and with a 1% contribution, that come up to grand sum of £63.32 per year from the employer. The employee would pay £63.32 per year as well for now.

An average wage of £25,000 would only get £193.32 contribution per year from the employer as well.

Of course, that is very minimum your employer has to do.

Cheers,
Joe

FatherAbraham

utigers wrote: »

I know they need to start these things slowly but 1% is such a low amount for both parties to contribute when you work out the £.

That's easy to say when one has lots of disposable income. Some workers don't, and auto-enrolling at a higher rate could be a grave financial shock to them. It will also be an extra expense for some employers, who may be in financial straits themselves.

This is a one-size-fits-all policy (of course, it has to be, if it's to be cheap to enforce). The goal is to get the largest number of people over the hurdle of not having a pension. That's the big step forward. Contribution rates can be slowly increased later.

You'll perhaps also be outraged to learn that you will incur the first deduction automatically: only afterwards can you opt out and receive a refund. That's also designed to make it harder not to proceed.

When trying to persuade an acquaintance, who has no pension provision, and clearly needs to be saving about £400/month to achieve his expectations for retirement, to consider starting, I don't usually begin with that sum ("You need to start saving £400 per month IMMEDIATELY!"), because that doesn't work.

A higher success rate is achieved by pointing out that one can begin a smal,l, additional stakeholder pension for just £16 a month. This is easy to swallow, and usually within a year, they've got the message, and have increased their savings enormously.

Warmest regards,
FA

Daniel_Elkington

it's not that straightforward.

There are several ways they can prove compliance to TPR. Band earnings is just one way of doing it and are very reflective of the NEST model.

To be honest a GPP is the best way of investing money - not because of the long term returns - but because you get free money.

Take the 8% example (1/10/18). Employee pays in 4% via salary sacrifice and actually saves on NI on that amount (net payment 3.5% ish).

So the employee pays in 3.5% into something and gets an investment worth 8% immediately. I know of nothing else that provides over 100% growth immediately.

Plus if the GPP is with someone good like Scottish life / widows / Aviva then there will be a whole host of options for investment (or should be).

I agree, auto-enrolment is almost a complete disaster, but this £40bn funding gap has to be filled - they either make us pay into our own pension or they increase national insurance.

andyb2002

All the arguments are fine for the young who will be saving for around 20+ years and so can start small and build up contributions.

What about the 59 year olds like me who cannot afford to pay large sums, to get a decent pension for example of around £250 per month I would have to make monthly payments in the region of £1200 a month. It is not going to happen, however, I am having sum £155 of my salary taken along with a similar amount from my employer.

This will get me a monthly pension of around £40 a month with a tax free lump sum around £5000. The number just don't stack up, I need to live around 40 years after I retire at 66, most unlikely. Why are pension such poor performing products.

Would I not be better just putting my £155 into an ISA?.