With the state pension system straining to maintain a minimum income for pensioners who are living longer, the government has introduced new pension reforms that will encourage people to save for their own retirements before it’s too late.

The biggest change comes in the form of auto-enrolment, which is a programme that will see all employers automatically enrol their employees into pensions. These pensions also include mandatory contributions from employers, which means that millions of people who have never had access to employer contributions will now be entitled to them by law.

Staggered and delayed

The basic structure of how auto-enrolment will begin to roll out, with the country’s largest firms complying with the policy first while smaller companies are given time to adjust, remains the same. However, the government has recently released a revised timetable for when all employers will have to conform with auto-enrolment.

The process will still be staggered, with the deadlines for the largest employers in Britain remaining unchanged. Nine of the biggest employers will give all workers pensions by 1 October 2012, with the rest of the large firms (employing 250 or more employees) complying with auto-enrolment by 2014.

There is a longer wait for employees of medium-sized and small businesses, as firms with 50 to 249 employees will need to implement auto-enrolment between 1 April 2014 and 1 April 2015. Smaller companies will have between 1 August 2015 and 1 October 2015. The country’s smallest firms, with fewer than 30 employees, will have between January 2015 and April 2017.

Contributions and benefits

This means that all qualifying British employees will be entitled to pensions and employer contributions by 1 April 2017 at the latest. Like the implementation of auto-enrolment, the rates of contribution are staggered to allow companies time to cope with the new financial burden.

At first, employees will pay in 1% of their salary, with a matching 1% from employers. This will then be increased to a minimum 4% contribution from employees, while employers will pay at least 3% of their employees’ salary into their pensions. The deadline for full contributions is 1 October 2018.

With an additional 1% in tax relief, the government’s new policy of auto-enrolment means that millions more workers are entering into the pension savings market, and will have at least 8% of their salary put away towards retirement. Staying in an automatically enrolled pension does not bar people who want to save more from doing so into a personal pension, and gives all employees a chance to receive employer contributions.

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