Trustnet Direct Retirement Programme | Page 22

PLANNING Auto-enrolment and workplace pensions In October 2012, the government introduced new rules to encourage more people to save for retirement. This new process is called auto-enrolment. It means that you will be automatically placed into your company's pension scheme. Employers are now obliged to offer a qualifying pension scheme to their employees. All workers who earn above a certain amount (£10,000 a year in 2015/16) are automatically enrolled into a pension scheme. If you work for a large employer, this will have happened in October 2012. If you work for a medium or small company, you will be automatically enrolled into a pension by 2016. You can opt out and leave the scheme, but only after you have been automatically made a member. The National Employment Savings Trust (NEST) is an independently run defined contribution (DC) pension scheme specifically designed for low to moderate earners and those whose employer has no existing scheme. It will also be open to the self employed who wish to set up a personal pension. Annual contribution limit: Employee + employer + tax relief £4,700 Page 22 NEST members are restricted to an annual contribution limit of £4,700. This is the combined total from the member, their employer and the government (via tax relief). The minimum employer contribution will be 3 per cent of qualifying earnings in 2018. NEST fees for members have been set at a 0.3 per cent annual management charge and an initial 1.8 per cent charge on contributions. For most people, these will be lower than existing DC schemes, which typically charge an annual management fee of 1 per cent. NEST investment choices will be limited to five default funds and an ethical fund. They incorporate lifestyling, or a reduction in exposure to riskier investments, as the member nears retirement . Key points Workplace pensions are being made mandatory to all employers large and small by 2016 Your employer will match your contributions to a preset limit These pensions may not provide you with a sufficient income in retirement as contributions tend to be small