Automatic enrolment into work pension

Spark

I just received a letter from my workplace pension provider about the automatic enrolment into my workplace pension.
We have a work pension for years now, my employer is putting 3% into it, but I have opted out and contribute nothing, as I had another pension I was paying into.

Now they are asking me to make at least the minimum contribution to my plan, stating that if at any time they realise that the total contributions into my plan are not high enough, they will be obliged to report my employer to the pension regulator, who may ask the employer to pay the shortfall if not enough contributions are paid in.

Except for the fact that it sounds like blackmail to me, I thought you could opt out of the scheme, (or in my case carry on opting out), or am I mixing this up with another thing?

"By making contributions to the plan you are agreeing to make your payments at a level that, together with the contributions from your employer, is at least the same as the total minimum contributions required for your plan".

Of course, there is no mention of what is the minimum required for my plan. Who set the minimum required, the pension provider or the government, and does anyone knows what it is?

With my rent gone up by £30 a month for 2 consecutive years (and maybe 3 as they might rise it again this year), and no pay rises for the last 3 years, I feel I can't afford to pay in the pension at the moment, as I feel I got less and less money every year to live on. I also stopped contributing to my private pension for the reason mentioned above.

hugheskevi

We have a work pension for years now, my employer is putting 3% into it, but I have opted out and contribute nothing, as I had another pension I was paying into.

On the face of it, an odd choice but presumably you had your reasons.

Now they are asking me to make at least the minimum contribution to my plan, stating that if at any time they realise that the total contributions into my plan are not high enough, they will be obliged to report my employer to the pension regulator, who may ask the employer to pay the shortfall if not enough contributions are paid in.

That is simply detailing the legislative requirements and compliance.

I thought you could opt out of the scheme, (or in my case carry on opting out), or am I mixing this up with another thing?

No, you are correct that you can opt-out. In your case, you will be put into the scheme and have to actively opt-out rather than simply continuing to opt-out.

Of course, there is no mention of what is the minimum required for my plan. Who set the minimum required, the pension provider or the government, and does anyone knows what it is?

The Government. There is a calculator here.

Your employer may choose to set either or both employee and employer contributions above the minimum however.

With my rent gone up by £30 a month for 2 consecutive years (and maybe 3 as they might rise it again this year), and no pay rises for the last 3 years, I feel I can't afford to pay in the pension at the moment, as I feel I got less and less money every year to live on. I also stopped contributing to my private pension for the reason mentioned above.

Pensions are about smoothing income, moving income from the current period to a future period. If you do not have income enough now, you need to assess both your current income and your planned retirement income to ensure you are consuming at a sustainable level both currently and in the long-run.

Spark

So, what is the procedure to opt out, should I inform the work accountant that I want to carry on opting out, and he'll do the rest?
Following what you say, I can only do that once I start paying into it. Will the money that I paid before the opt out occurs be given back, or should I budget for the loss of that money in advance? How long does the opting out procedure take from the time you ask to opt out?

jamesd

Spark wrote: »

Now they are asking me to make at least the minimum contribution to my plan, stating that if at any time they realise that the total contributions into my plan are not high enough, they will be obliged to report my employer to the pension regulator, who may ask the employer to pay the shortfall if not enough contributions are paid in.

They are, eventually, required to make a report in some circumstances but not for something as routine as you opting out. The reporting only applies in cases like systematic underpayment by an employer, things like taking deductions from pay but not paying them into the pension.

Spark wrote: »

I thought you could opt out of the scheme, (or in my case carry on opting out), or am I mixing this up with another thing?

You can. They are required by law to have a way of doing this. Your employer is also required to automatically enrol you once every three years making you opt out again each time. They are not allowed to take an instruction from you not to do these enrolments.

Your employer is not allowed to take requests to opt out. The most they can do is provide you with a form to complete but normally it's done by contacting the pension provider after you have been opted in. The first month's contributions have to be refunded to you in your pay once they get your opt out request. You must do this within 30 days of being notified that you have been auto-enrolled if you want to get back all deductions.

Spark wrote: »

Of course, there is no mention of what is the minimum required for my plan. Who set the minimum required, the pension provider or the government, and does anyone knows what it is?

The government has set the minimum. It's currently 2% of eligible salary, increasing gradually to 8% in 2018. Half of the 2% is from the employer, 80% of the rest is from the employee and 20% is basic rate tax relief. Next step up is 5% total with 2% from the employer in October 2017 then 8% with 3% from the employer in October 2018.

hyubh

Spark wrote: »

We have a work pension for years now, my employer is putting 3% into it, but I have opted out and contribute nothing, as I had another pension I was paying into.

If I'm reading this correctly, you joined the work pension, but then opted out while your employer continued to pay into your pension on your behalf...?

Now they are asking me to make at least the minimum contribution to my plan, stating that if at any time they realise that the total contributions into my plan are not high enough, they will be obliged to report my employer to the pension regulator, who may ask the employer to pay the shortfall if not enough contributions are paid in.

Except for the fact that it sounds like blackmail to me

Not really. On the one hand, auto-enrolment legislation enforces a minimum total contribution, and on the other, the normal situation is that opting out of employee contributions means opting out altogether (i.e., losing employer contributions). I expect that for auto-enrolment purposes, you aren't actually classified as having opted out prior to your employer's 'staging date' for auto-enroling staff - if you were, then your employer could elect to let sleeping dogs lie (well, for three more years at least).

Who set the minimum required, the pension provider or the government

The former in light of what the latter enforces.

I feel I can't afford to pay in the pension at the moment, as I feel I got less and less money every year to live on. I also stopped contributing to my private pension for the reason mentioned above.

Probably still worth it in the longer run for the employer contributions.

should I inform the work accountant that I want to carry on opting out, and he'll do the rest?

Even if this accountant isn't the person who processes opt outs, I'd expect he/she should know what the procedure is.

I can only do that once I start paying into it.

Yes, the government wants to discourage opt outs, and employers encouraging staff to opt out - and that is one of things enforced to do that.

Will the money that I paid before the opt out occurs be given back

For sure, so long as you elect to opt out promptly. If you got tax relief at source for paying pension contributions though, then the amount refunded will be slightly lower than the amount contributed.

How long does the opting out procedure take from the time you ask to opt out?

How competent is that 'work accountant' you mentioned...?

More generally, pensions auto-enrolment isn't about dealing with a government agency with a single standard procedure - rather, the government has set out various things that employers must and must not do, and as such, it's then down to employers and their pension providers how they arrange matters at a practical level.

Spark

(----"Originally Posted by Spark View Post
We have a work pension for years now, my employer is putting 3% into it, but I have opted out and contribute nothing, as I had another pension I was paying into.

If I'm reading this correctly, you joined the work pension, but then opted out while your employer continued to pay into your pension on your behalf...?"----)

At the time we had the choice of paying something into it or not, but the employer contributed to it from the start. So I suppose I was enrolled into it. I had just started another private pension and part of my taxes were being paid into that pension. That pension was flexible, I could change the amount I was paying following my circumstances, and I did like the flexibility of it.


"Except for the fact that it sounds like blackmail to me"

I was saying that more for the way the letter is written, like if I don't contribute the employer might be reported and have to pay the difference. Or is it to pressurise the employer to "encourage" his employees to contribute?
Obviously, if the people who abstained to contribute to their pension start to pay, it will be a big boost in the income of the pension company, so it's not in their best interest to give you the information about the fact that you can opt out.

atush

Personally, I'd cut back elsewhere and still contribute to the pension. Post an SOA on the budgeting or debt free boards and get help with cutting your costs back.

Or start a spending diary putting in EVERY pound you spend even on parking, coffee, newspaper. you'll soon see where the waste is and where to cut back.

Spark

I'm already doing without a car, sky, and only go out occasionally.
What I save is for replacing what's broken, or things like the dentist which costs an arm and a leg, and I save less and less every year, I still got to put my heating on this year, and haven't had a holiday for years now. I make things last until they break, I read the metro newspaper, I will not be cutting on coffee, though I drink less of it now.
You need to live a bit until your retirement, furthermore they keep moving the post all the time, by the time I retire I'll be 80. Everything is going up, especially my rent which has risen by £60/month in the last two years (with still more to come probably), and my wages don't, and right now I feel that, in my budget, I can't afford to pay for retirement. My situation might change in the future, and I will review my situation then, but at the moment it looks like it's not moving towards a better time.
But I am glad to say that I don't have any debt neither, so I am not doing too bad in my budgeting.

dunstonh

You need to live a bit until your retirement, furthermore they keep moving the post all the time, by the time I retire I'll be 80.

They do not move the posts all the time with personal provision. There are tweaks made. Most of which have actually been beneficial and extended options available. The only negative was increasing the minimum pension commencement age from 50 to 55. The average retirement in the UK has been steady at 62/63.

If you break your life cycle down into three periods, In period 1 you have parental support whilst you are child. You spend none of your own money and you save no money. In period 2, your working life, you earn money and you spend that money. In period 3, you are no longer getting an earned income but are reliant on what you put aside in your working life.

Every penny you spend in period 2 (working life) is effectively robbing period 3 (retirement). So, if you prefer to live for now, then you will be paying for it later by having a lower living standard in retirement.