Financial
Auto enrolment
Auto enrolment (A.E.) has been passed into law after 20 + years of various government considering this issue of the inadequacy of the state contributory pension (OAP) A.E. will not solve this dilemma but it is designed to help supplement the state contributory pension (OAP).
According to a survey by Zurich Life June 2024 Auto enrolment will not suit 25% of of qualified staff from a tax point of view.
Auto enrolment requires that the employer contributes initially 1.5% of salary and eventually after 10 years service the employer will contribute 6% of salary. 6% may apply to new staff with A.E. service
There is no tax relief for employees on their contributions so the amounts quoted above are deducted from their net pay.
The amount of deduction will not provide anything near a two thirds salary including the OAP and yet neither the employer nor the employee cannot contribute more than the scheduled contribution.
Employees who set up their own personal or prsa pension arrangement will lose their tax relief and be forced to join the auto enrolment scheme.
Employees can opt out after two years but must be joined again immediately.
As of today, 800,000 of private sector workers have no additional pension (other than the State pension) – and 200,000 of these are higher rate taxpayers. There is certainly a strong argument to say that a majority of this audience would be better off starting their pension journey today, rather than waiting for AE – and it is Financial Brokers that are best placed to help them.
There are many good aspects to the concept of A.E. but most employers prefer to have some control on their scheme. Very recently Life companies have improved their offerings hugely in terms of cost and access to information for the employer and employee for both small and large employers. Give me a call if you wish to discuss your options if you do not want to wait for the arrival of the compulsory scheme to dictate the T’s and C’s in early 2025