Friends Life has launched a five-point guide for employees to learn about auto-enrolment.
The introductory tips to familiarise employees with the upcoming changes are:
- Where are you now? The ins and outs of pension saving are not always high on the agenda at the start of a new job, so a good start is to find out what is already in place.
- Check your eligibility. Under auto-enrolment, pension provision could change. Employers will have to automatically enrol all UK taxpayers, aged between 22 and the state pension age and earning over £7,475 into a pension scheme. Employees should check if they are eligible.
- What is paid in will depend on a number of factors, but it will make personal financial planning easier if the employee understands what they and their employer are likely to have to contribute.
- Different employers will begin auto-enrolment at different times. Obligations begin from October 2012, starting with large employers.
- Work out where your money goes. An employee’s contribution into a pension scheme, coupled with contributions from their employer and tax relief from the government, really can make a big difference to pension savings. The amount enrolled employees are asked to contribute into a pension will increase gradually, starting at 1% and increasing up to a maximum contribution of up to 5% of earnings from 2017.
- Be positive. The timing of these changes may not seem ideal given the economic climate, but putting off saving today could leave employees reliant on the state pension, which may not be enough to provide the lifestyle they want in retirement. Positive action, even if just small sacrifices here and there, really could make all the difference down the line.
Martin Palmer, head of corporate benefits marketing at Friends Life, said: “For many workers who do not currently save anything towards retirement auto-enrolment will mean a huge change.
“Just as employers are starting to prepare for the introduction of the reforms, employees should start thinking about their saving habits and how the changes might affect them.
“The best thing employees can do is have a good think about how much income they would like in retirement and use one of the many online calculators to understand how much they need to save each month to achieve this, and what impact it will have on their planned retirement date.”
Read more articles on the pension reforms and auto-enrolment