It’s National Payroll Week, and to mark this occasion we would like to highlight the importance of paying into your workplace pension.
It is easy to put off paying into your workplace pension when you have so many other outgoings each month but if you avoid paying it for too long it can have some serious consequences which could affect your future.
What is Automatic Enrolment?
Automatic Enrolment is a Government initiative to help more people save for later life through a pension scheme at work.
Every employer with at least one member of staff must enrol those who are eligible into a workplace pension scheme and contribute towards it.
The scheme is called ‘automatic enrolment’ because it is automatic for staff – they don’t have to do anything to be enrolled into a pension scheme.
Auto Enrolment is currently being phased into the UK and all employers must be using the scheme no later than 01 February 2018.
If you are an eligible employee who is automatically enrolled into a workplace pension scheme has the right to opt out after they have been automatically enrolled.
If you opt out of the scheme one month of being automatically enrolled, you will be treated as if you have never joined the scheme and any money paid in will be refunded in full.
Opting out of the pension scheme will give you extra expenditure on a short term basis but I the long term there are some serious consequences and you would lose out on the following:
- The contributions that your employer makes into your pension pot.
- The tax relief that the government adds to the contributions that you make into your pension pot.
- Any benefits that your scheme might pay to your dependants if you were to die.
There are a few circumstances in which opting out may make better financial sense. In particular, you may want to consider opting out if you:
- Have problem debts – if you find yourself relying on borrowing to make ends meet each month, then getting on top of your debts should be your first priority.
- Are close to retirement (within, say, two years) – paying down any borrowing is likely to be a better use of your money.