Ten million UK workers should now see a more significant lump of their monthly pay packet automatically diverted to a pension set up in their name, beginning immediately as the new tax year begins.
Employees, employers and the UK government will all give more to these pensions, meaning less take-home pay for many due to the automatic enrollment in this workplace pension.
However, workers have the right of opting out of the pension scheme at any time if this wish to do so. If workers choose to do this, they have a choice between saving for the future or taking the money now.
Why is this change happening?
Ten million UK workers, aged 22 and over and earning more than £10,000 annually and not presently in a company pension scheme will be enrolled automatically, so they save enough for their retirement.
The pension scheme was launched in 2012, and now the automatic enrollment has begun this tax year.
For example, workers earning £30,000 gross annually who is in the scheme will see an additional £32 a month from their gross pay placed into their pension pot.
Analysts state that by choosing to opt-out of this automatic pension enrollment, workers would lose pension contributions that their employer places into the workers’ pension pot.
“Anyone considering about opting-out needs to think long and hard about what it will mean for their long-term retirement prospects. People who do quit their workplace pension are likely to be tens of thousands of pounds worse off over their career and face living on the state pension, which is currently worth under £160 a week” said Tom Selby, of senior analyst at investment company AJ Bell.
Will these savings help create a sizeable pension pot?
Under the auto-enrolment pension scheme, a 24-year-old worker earning £30,000 annually should generate a pension that could provide a retirement income of roughly £11,000 a year in today’s value.
Of course, the final pension total depends on the companies pension performance over the many years that they will work adding in contributions. So this amount could even be much lower and is £11,000 a year in a pension, really enough to continue living on?
Although there is no doubt that the majority of enrollments will benefit the majority, there is a level of criticism levelled against the system. Many workers (mainly women) who work part-time do not or are unable to earn the £10,000 gross annual salary needed to qualify for the automatic pension contributions.
Women, because of their roles are mothers, are not able to return or complete full-time work. Thus, they typically have to work less and earn less, meaning that any pension contribution change will have more of a noticeable impact in terms of their monthly take-home pay.
You can check your state pension calculator here.