Pension scheme at a glance
The UK has taken big steps in recent years to improve the weaknesses in its pensions system. With the auto-enrolment, the pension system has increased its coverage and this means that more contributions are paid into the "pot" for more people and thereby providing better benefits and improved sustainability.
To make it easier to understand, the British pension structure is divided into two main sections: State Pension and Private Pension.
State Pension:
To get a state pension, you need to reach state retirement age with at least 10 years of contributions to receive the minimum amount, up to a total of 35 years of contributions, for the maximum amount. However, the maximum state pension is inadequate because it has an amount below the poverty line.
Private pension:
- Individual pension:
They are personal pensions, stakeholder pensions and self-invested personal pensions (SIPPs). The value of your pension will depend on how much has been paid and on the degree of risk of the relevant investment fund. In addition, your partner or employer may also contribute to your individual retirement (within the Workplace Pension). There are many options in the choice of providers for their individual retirement.
Stakeholder pensions are a form of defined contribution pension. They have minimal and flexible contributions, covered fees, and a predefined investment strategy. Some employers offer them, but they can also be started on their own.
A self-invested personal pension (SIPP) is similar to a standard personal pension. The main difference is that you have more flexibility with investments that are not predefined.
- Workplace pension:
From 2018, all employers will have to provide their employees with a "workplace pension scheme".
The new rules will give every worker the chance to save for their retirement.
This procedure is called "automatic enrolment".
The minimum contribution consists of money from the remuneration of the worker, his employer, and the government's tax debt.
Employers must automatically enrol their employees in a retirement scheme and contribute to their retirement under the following eligibility conditions:
- you are classified as a "worker";
- between the ages of 22 and the retirement age;
- you earn at least £ 10,000 a year;
- you work ordinarily in the UK.
Employees who do not have these requirements and therefore can’t automatically register, will still have the right to apply for the same scheme if they wish.
In some cases, the directors of a company may be exempt from duty at "automatic enrolment" even if they have a work contract. This is because, in these cases, the director isn’t classified as a worker.
A director is considered as a worker when:
- has a contract with the organisation;
- at least one other person (who may be another director) has a work contract with the organisation.
The form of the employment contract is not mandatory in writing, it could also be a verbal or implied contract.
If the manager does not have a job contract, he can not be a worker and therefore is always free of automatic enrollment.
Only organisations employing workers have automatic registration assignments.
There are two types of workplace pension:
• defined contribution: the money set aside by employee and employer pay is invested. From the age of 55 you can recover cash in cash, use it to set up an income or both.
• defined benefits: the money you receive depends on the wage at the time of retirement age and how long you have worked for that employer
The minimum contribution will gradually increase from 2% (October 2012) to 8%. The expected dates for increases of 5% and 8% are April 2018 and April 2019.
|
|
Employer |
Employee |
|
April 2017 |
1% |
1% |
|
April 2018 |
2% |
3% |
|
April 2019 |
3% |
5% |
You will need to register your employees 30 days before the government's scheduled start date and complete the declaration of compliance at the "Pensions regulator" website.
You may decide to leave your pension plan at any time. If you have been automatically enrolled, you can leave the scheme within one month of the date your employer entered you into the "workplace scheme" procedure called "opting-out" (the paid money will be returned). If you leave the scheme after one month (cessation of registration), it may not be possible to retrieve the payments made (this depends on the type of pension scheme). This depends on the rules of the retirement scheme and varies from one supplier to another.
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