In this blog post, we look at five things which you may not have known about your pension rights.
While retirement may seem like a distant thought for many, it is vital to have at least some understanding of the intricacies of the UK pension scheme.
What should you know about your pension?
1. Your rights to a pension
This is a big one. A pension is a prerequisite in most jobs and there are only certain people who aren’t entitled to one.
So, if you’re between the age of 22 and the state pension age, and you earn a minimum of £10,000 per year, your company must enrol you in a pension scheme with a minimum employer contribution of 3%.
If you fit into this category, then you are what is considered to be an “eligible jobholder”. You should not have to ask for this to be done and the company you work for has to pay into your pension scheme should you wish to take part. This is defined in legislation and all companies must abide by these rules.
If you are under 22 or you earn at least £10,000 per year, you are considered to be a “non-eligible jobholder”. Despite only meeting one of the necessary criteria, you can request to join your company’s pension scheme. The operative word in this sentence is “request”, as your company has no legal obligation to enrol you in their pension scheme straight away.
However, this does not mean that you don’t have a right to it. In this instance, you should speak to your HR or payroll department. Should you wish to join, you would be entitled to the same benefits as eligible jobholders.If you’re between the age of 16 and the state pension age and earn less than £6,136 per year, then you are considered to be an “entitled worker”. Nevertheless, you can enter your company’s pension scheme; however, you may not receive a minimum employer contribution.
Regardless of what type of employee you are, your employer has to write to you within six weeks of your initial assessment to tell you whether or not you will be automatically enrolled.
2. Pension eligibility
So, we’ve looked at the age, wage and salary criteria required to qualify for a pension, but what about the time you need to have been at a company before you can begin contributing?
The system in the UK is pretty clear; from the first day of your employment, you should be assessed and added to the workplace pension scheme. Employers do have the right to postpone your enrolment by up to 3 months if they choose, but no more than that.
There are several reasons as to why there is a three-month leeway in place. Lots of UK companies insist on giving employees a three-month probationary period. This may be because they wish to evaluate an employee within the role, or because they want to see whether or not they are the right cultural fit.
In some cases, companies may decide to prolong the probation period; however, they are still required to enrol you in a pension scheme if you’re an eligible jobholder, or if you’re a non-eligible jobholder and you request to start contributing.
Another reason for the three-month gap is to allow companies the time to put the necessary procedures in place. While it’s certainly true that they should be prepared for such an event, if it’s a startup or a company that has just arrived in the UK, they may require a little more time to put things in place.
If after three months in a job you still haven’t been enrolled within a pension scheme, then your company is breaking the law and, as such, is not compliant.
3. Opting out of a pension
As an employee, you’re well within your right to decide that you do not want to contribute to your pension.
Nevertheless, there are some things that you need to understand about choosing to opt-out. First of all, you cannot avoid your pension deduction by opting-out before being enrolled. This is because, if you meet the pension requirements, your employer has to enrol you on to the pension scheme.
If you choose to opt-out after the first month, you can receive a pension refund for your pension contribution. However, it is worth noting that you are unable to receive a refund on a pension contribution if you’ve been contributing for more than one month.
Every three years, your employer is required to re-enrol you. You can repeat the same procedure if you are still not willing, or ready, to make contributions.
4. Pension re-enrolment
Right, you’ve been in a job for three years and you’re not contributing to your pension. You probably decided when you first joined that you weren’t interested in contributing. That’s absolutely fine and you’re well within your right to keep doing the same.
However, your company has to re-enrol you into its pension scheme every three years. If they choose not to, then they’re quite simply breaking the law.
The only circumstances when your company would not do this would be if you’ve let them know within the previous 12 months that you weren’t interested in contributing, if you’ve already handed in your notice, or if you already have the protection of a lifetime allowance.
5. The 8% rule & salary sacrifice
Any workplace pension scheme has to total a minimum contribution of 8%.
At the beginning of 2019, the minimum contribution was 5%, with only 2% being contributed by the employer. Under the new regulations, the minimum contribution is 8% with a minimum of 3% coming from your employer.
Some employers may decide to contribute more and if so, you would have to contribute the remaining amount to reach the holy grail of 8%.
You are within your rights to contribute more; however, the scheme is not incremental. This means that your employer still will only ever have to contribute 3% themselves.
Pension auto enrolment using PayFit
The PayFit app is able to tell through analysing an employee’s age, employment type and earnings, whether or not they are an eligible, non-eligible or entitled worker.
If the employee is eligible, an action is generated for the employer to add the employee to a pension scheme (or postpone for up to a maximum of 3 months), with at least a 3% employer and a 5% employee contribution. All of this has to be finalised prior to payroll being run.
If an employee is not eligible on a particular month, the app will continue to assess on a month-by-month basis until they become eligible.
Interested in finding out more? Why not book a call with one of our product specialists?