Wondering what the pros and cons of automatic enrolment are? With few exceptions, being enrolled into a workplace pension is something you should welcome. Far too many of us aren’t saving enough for retirement and automatic enrolment is a hassle-free way of getting started, with your employer usually paying part of the cost.
- What automatic enrolment means for you
- What will it cost, what will you get?
- Are there any reasons to opt out?
What automatic enrolment means for you
Automatic enrolment involves two key changes that are likely to affect you:
- First, it means that joining a workplace pension scheme becomes that much easier. Rather than having to take steps to join, under automatic enrolment most workers will be signed up without them having to do anything, though you can opt out if you want to.
- And second, it makes saving into a pension more financially attractive by making it compulsory for employers to pay into eligible workers’ pension schemes. A lot of employers were already doing this, but now all have to.
The reason these changes were introduced is that too few of us are saving as much as we should for retirement.
In general, there’s a big gap between the kind of lifestyle we hope to enjoy in retirement and the kind of lifestyle that we’re on track to be able to afford.
Don’t rely on the State Pension to cover you in retirement.
From April 2018 the new full State Pension will be £164.34 per week – far below the kind of income most people say they hope to retire on.
What will it cost, what will you get?
The first thing you should do is use our Pension calculator to work out the retirement income you might get from saving into a workplace pension scheme.
You can also use our Workplace Pension Contribution Calculator to help you get an indication of what your pension contributions will be under automatic enrolment.
Are there any reasons to opt out?
For most people, it’s a good idea to stay in a workplace pension scheme after being automatically enrolled.
But there are a few circumstances in which opting out might make better financial sense.
In particular, you might want to consider opting out if you:
- are close to retirement (within, say, two years) – paying down any borrowing is likely to be a better use of your money.
- 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.
This article is provided by the Money Advice Service.