In 2008, the United Kingdom government launched the Pensions Act, under which every employer is required to enroll its staff into a pension scheme and also contribute towards it. This includes start-ups, small-scale corporate companies, and multi-national companies too. The scheme is mandatory for every UK worker aged between 22 and state pension age and earning more than 8,105 pounds (for 2012/13). But people who are not in this group have the choice to opt in too. In order to get all UK working professionals enroll in the workplace pension plan, the government has launched an ‘automatic enrollment’ system. In automatic enrollment, any employer who hires even one employee has to enroll him/her into the Pensions Act 2008.
Initially in 2012, only the large companies were requested to participate in the mandatory pension scheme. Later, it was said companies with 50 and more employees are required to join this scheme. Now, irrespective of the size of the company, all UK employers are required to provide the pension plan to their employees. These pension plans are supplemental to the National Insurance pensions that are currently provided by the government.content
The level or amount of contribution the employee makes will depend on the scheme of rules. The current standards are as follows:
3% of each employee’s salary is contributed to the workforce pension plan as of April 2018. From April 6th, 2019, all employees must contribute 5% of their salary to the pension plan at the time of which the pension plan would be fully implemented all over the country. In the case of employees who contribute 4% of their salary the government would contribute 1%. Employees who choose to opt out are not entitled to any contributions or other benefits from either the employers or the government.
A few of the other benefits in addition to the pension plan include:
- Tax creditsor an increase in the amount of tax credits the employee receives
- Anincome-related benefit or an increase in the amount of benefit the employee receives
- Reduction in the amount of student loan repayments the employee needs to make
If the employer doesn’t offer a pension scheme of its own, it will have to start enrolling into a third party scheme (government run third party schemes). The employer can choose the scheme they want to offer their employees. The only group to be exempt from this pensions revolution will be the self employed.
Additionally, the employer must re-enroll its employees every three years on the workplace pension plan and also, convince those employees who had previously opted out to join the pension plan.
While the Pension Act 2008 is beneficial for people who are in their mid-career and reaching retirement, the scheme tends to be a disadvantageous for employees who are young in their career. Young employees may find it difficult to repay loans or manage monthly payments. Keeping such issues and cons in mind, the UK government promises to give extra benefits to employees so as to not disrupt their financial plan.
When the employee hits the 55 age old mark, the employee can withdraw multiple sums or one lump sum amount directly from your pension. This amount can later be used by the employee to invest in property or other types of investments. The employee is also entitled to an annuity or an alternate secured pension. An annuity is a policy that provides a regular income in exchange for a huge amount of money. The employee can withdraw the pension money irrespective of his/her retirement.
The Pensions Act of 2008 should be seen as a slow and steady preparation for a safe and secure retirement. This scheme helps the citizens lead a comfortable and relaxed time in the late stages of their life.