For many UK employers and employees, 2020 marks the third anniversary of their workplace pension scheme. This is because many employers started their auto enrolment duties on 1 September 2017. So what does this mean for members of the NOW: Pensions Trust workplace pension scheme?
Automatically re-enrolled every three years
Even if you’ve previously asked to leave your workplace pension after being enrolled, your employer has a legal obligation to automatically re-enrol you every three years. This is to encourage you to save for your retirement. At the third year ‘re-enrolment anniversary’, your employer must:
- check whether any employees who aren’t currently members of the scheme are eligible to be enrolled and enrol them if they are;
- start making contributions.
We will write to tell you if you’ve been re-enrolled, explain how it works and let you know what you need to do.
How your pension contributions work
If you are enrolled, here’s a reminder of the minimum contribution rates you and your employer are required to pay for the 2020/21 tax year:
- You contribute 5% of your qualifying earnings (the earnings that count towards pension contributions). The amount may go up or down, depending on how much you earn
- Your employer contributes 3% of your qualifying earnings
- So a total of 8% of your qualifying earnings is going into your pension.
The Scheme is a net pay arrangement, so any contributions you make are taken off before your income tax is calculated.
Don’t miss out on future savings
Remember, the aim of re-enrolment is to help you build your pension savings. If you opt out:
- you miss out on your employer’s contribution – at least 3% of your qualifying earnings
- if you’re a taxpayer you miss out on tax relief as you pay your pension contribution before tax is deducted
- you don’t build up any more savings in your pension scheme.
This means you may be missing out on ‘free money’.
For example, if you pay £75 into the Scheme, you’ll also save £15 that you’d otherwise pay as tax. Your employer will then add their £45, making a total contribution of £120*.
Because your original £75 contribution only cost you £60, you’ve effectively doubled your pension contribution. That’s a great way to save.
*(Based on minimum employer and member contributions for a basic rate taxpayer.)
Time to increase your contributions
Re-enrolment is also a good opportunity to think about saving more. Paying a little more into your pension now could help you grow a healthy sum for your retirement.
For example, £10 extra per month over a 40-year working life could turn into £13,060 in retirement. Your contribution towards that sum would be £4,800.
Net pay top-up scheme for non tax-payers
If you’re a tax-payer, you automatically get tax relief on your pension contributions at the highest rate that applies. If you don’t pay tax, you won’t benefit from this, although this doesn’t affect the amount that’s paid into your pension.
Although the government is taking steps to address this, NOW: Pensions is keen to ensure that non-taxpayers don’t miss out. So, if you haven’t paid any tax on any of your UK earnings, we’ve committed to top up your pension pot by the amount of tax relief you’ve missed out on for the 2019/20 tax year.
To enable us to do this, you need to fill in a claim form, as well as give permission to the Inland Revenue (HMRC) to communicate your tax situation to us.
Check our member website for more details when the scheme re-opens later this year.
Can I opt out?
Yes. Once you’ve been enrolled, you’ll have one month (or the date we write to you, if this is later) to opt out. We’ll explain how this works in our letter.
If you opt out by the deadline, your employer will refund your contributions, usually through the payroll. If you miss the deadline, your contributions can’t be refunded. They’ll stay invested in your workplace pension until you retire, or you transfer them to another pension provider.
You can leave your workplace pension at any time. If you’re a member of the NOW: Pensions Trust workplace pension scheme, you can opt out online via your member account at nowgateway.com. You’ll just need your NOW: Pensions ID number and your date of birth to activate your account if you haven’t already done this.
Where can I find help?
If you want to find out more about re-enrolment, or anything else about your pension, the following organisations offer free, impartial information and guidance about retirement savings.
The Pensions Advisory Service can help with questions about workplace, State or personal pensions. Visit pensionadvisoryservice.org.uk or call 0800 011 3797.
Pension Wise has guidance on retirement options. Visit pensionwise.gov.uk. If you are over 50 you can book a telephone or face-to-face appointment by calling 0800 138 3944.
Citizens Advice has information about all types of pension. Visit citizensadvice.org.uk or call 03444 111 444 for a face-to-face appointment.
These organisations don’t give financial advice. If you want financial advice you will need to pay a regulated financial adviser.
The Money and Pensions Service has guidance on choosing financial advisers and a directory of financial advisers that specialise in retirement. Visit maps.org.uk or call 01159 659570.
The information above doesn’t constitute financial or professional advice and is general in nature. It doesn’t take into account your specific circumstances and we recommend you take independent financial advice before making any decision which could affect your pension. We do not accept liability for any loss or damage arising out of the use of or reliance on this information.