Un-confusing The Confused Rules Of Pensions

Up until very recently, it was up to the individual employer whether or not they offered a pension scheme to their employees and although many did, a large percentage of workers in the UK were not given access to a pension scheme through work. It’s long been recognised that in the UK the population as a whole is aging and in the future there are going to be less young people to fund pension payments to people who have already retired. As soon as the coalition government came into power in 2010 they launched a pension reviews process to look at how people are providing for their old age and what could be done to help. The consequence of the pensions review was a complete revolution in the pensions market, which started last November.


The aim of the new pension’s scheme is to encourage more of us to make provisions for our own retirement through a workplace pension rather than depending wholly on the standard old age pension. It is estimated that there are as many as 8 million people of working age who are not saving into any sort of pension at all and another similar number who are saving, but are not saving enough to guarantee a reliable income when they retire. This problem is particularly acute in the under 30 age group, and as the sooner you start saving into a pension the more money you will have when you retire, the government’s pension review aims to scoop up as many of these people as possible and enrol them into a company pension scheme.

Opt in, opt out

Before the end of last year, it was entirely up to the individual employee whether or not they joined their employer’s pension scheme, if there was one available. The onus was on the employee to request the forms, fill them in, work out how much they could afford to contribute and so on. The new system changes this completely, and from now on employees will be automatically enrolled into their employer’s pension scheme, unless they actively choose to opt out. The new scheme covers both full time and part time workers, and although the automatic enrolment only applies to people earning over a certain threshold, any employee, even someone only working a few hours a week, is eligible to join.

Gradual Roll-Out

This new scheme which has been brought out as a consequence of the pensions review is a huge change in the way we manage our pensions and it’s not just the employees who have to get to grips with the new system. Employers are now being forced to offer pensions to their staff, so in order to allow smaller businesses time to get the required schemes in place, the government has started targeting the largest businesses first. By September of this year, ever business employing over 1,250 people must be up and running with the scheme, and it will gradually be rolled out to smaller companies so that by 2018 companies which employ just one person will have to be offering pensions.


The one clear benefit of saving into any pension is future security and a more comfortable retirement. Saving into a company scheme means contributing as little as 1% of salary and this percentage is matched by the employer. Pension contributions are also subject to tax relief, meaning that every £100 you pay in is actually worth £120 if you are a basic rate tax payer. This is not the case with other methods of investing for your future such as keeping money in bonds, stocks and shares or property.

Kay Brown is a freelance writer who takes great interest in financial matters such as pension reviews and pension transfers. For advice on developments in the Government’s plans for pensions, follow her on Google Plus.