Auto-enrollment into company pension - can they do this?

[gmaz]

My company currently pays 5% of my gross salary into my personal pension scheme with the Scottish Provident and has been doing for the last 12 years. However, they now say I have to be enrolled into the company scheme and add a 0.8% contribution myself.

I can opt out but that means they will not pay the 5%. I'd prefer to carry on with the Scottish Provident scheme that my adviser recommend.

This is the rather curt email I received from the company pensions bloke...


I arrange the pension for Xxxxxxx.

The Company has to set up a Company pension compliant with auto-enrollment rules.

The provider is Royal London.

Everyone has to join this plan with a minimum contribution of 0.8% of basic salary, the Company will continue to contribute 5%.

0.8% will automatically be deducted from your salary in February, should you not wish to join this will be refunded in your March salary.

The Company will not make a contribution if you opt-out.

A letter with further details will be sent to you by your Company.

[Gareth1974]

I think you may be able to pay into more than one pension at the same time, maybe that's worth looking into?

Having £5 paid into a pension for every 80p (gross) you put in isn't to be sniffed at though.

Does your financial advisor have a vested interest in getting you to sign up fir 'his' scheme?

[walm]

I would kill for a "free" 5% raise.
Being forced to save 0.8% isn't going to kill you is it?
You should really be saving much more than that...! (Obviously everyone's circumstances different, no offence meant!)

Usually you should have some choice from these providers - so whatever Scottish Provident are offering you might be able to get something essentially the same from Royal London.

[Scootersp]

Not sure on your specifics but just to clarify in general, all companies now have to have a company pension scheme.

The minimum company contribution starts at 1% and the employees 1% (but with tax relief it works out at 0.8%), and this goes up in future (more for the company's up to I think 5%:3% ratio after a few years).

The company can choose to contribute more than the minimum as yours does, so that's nice! And I would focus on the fact that this change is brought on by the government and the employer is being forced to upset the status quo, therefore directing any angst/anger toward the company is perhaps misguided.

[otherman]

Correct, it's a legal requirement for the company to put in place an auto-enrolment pension with certain minimum contributions. You'll be glad of it in the long run, rueing the day you didn't take the tax advantage and pay more into it.

[gmaz]

walm said:

I would kill for a "free" 5% raise.
Being forced to save 0.8% isn't going to kill you is it?
You should really be saving much more than that...! (Obviously everyone's circumstances different, no offence meant!)

Usually you should have some choice from these providers - so whatever Scottish Provident are offering you might be able to get something essentially the same from Royal London.

Its not a 5% raise. Previously they were paying 5% into my personal pension, now I have to pay the same 5% into the company pension, effectively starting a new one and freezing my personal one.

[Gareth1974]

gmaz said:

walm said:

I would kill for a "free" 5% raise.
Being forced to save 0.8% isn't going to kill you is it?
You should really be saving much more than that...! (Obviously everyone's circumstances different, no offence meant!)

Usually you should have some choice from these providers - so whatever Scottish Provident are offering you might be able to get something essentially the same from Royal London.

Its not a 5% raise. Previously they were paying 5% into my personal pension, now I have to pay the same 5% into the company pension, effectively starting a new one and freezing my personal one.

On the face of it, the companies deal still sounds better than a private scheme which you have to make 100% of the contributions. Do you have an option to make AVCs (I'd be amazed if not)? Just pay AVCs equivalent to the amount you were prepared to throw at the Scottish Provident pension - who pay commission to advisers who get people to sign up their their pension schemes.

[TFP]

Gareth1974 said:

gmaz said:

walm said:

I would kill for a "free" 5% raise.
Being forced to save 0.8% isn't going to kill you is it?
You should really be saving much more than that...! (Obviously everyone's circumstances different, no offence meant!)

Usually you should have some choice from these providers - so whatever Scottish Provident are offering you might be able to get something essentially the same from Royal London.

Its not a 5% raise. Previously they were paying 5% into my personal pension, now I have to pay the same 5% into the company pension, effectively starting a new one and freezing my personal one.

On the face of it, the companies deal still sounds better than a private scheme which you have to make 100% of the contributions. Do you have an option to make AVCs (I'd be amazed if not)? Just pay AVCs equivalent to the amount you were prepared to throw at the Scottish Provident pension - who pay commission to advisers who get people to sign up their their pension schemes.

Sorry Gareth but this is all nonsense. I understand that your intention may be to help.

You're conflating two different types of pension in the terms that you are using and you don't understand commission either.

[Gareth1974]

TFP said:

Sorry Gareth but this is all nonsense. I understand that your intention may be to help.

You're conflating two different types of pension in the terms that you are using and you don't understand commission either.

If I'm wrong, fair enough, if your knowledgeable about this, why not try to help the OP?

[ellroy]

What does your contract of employment say?

I can see for new entrants/non-joiners that they can use the auto-enrol piece, but if you have an agreed contract with them already paying into a pension as part of it that they can't change that on a whim.

[PurpleMoonlight]

ellroy said:

What does your contract of employment say?

I can see for new entrants/non-joiners that they can use the auto-enrol piece, but if you have an agreed contract with them already paying into a pension as part of it that they can't change that on a whim.

This.

Auto enrollment into a worplace pension is in addition to any contractual pension contributions that may exist. This is because auto enrollment essentially replaces the old State 2 pension (SERPS) which was paid for within your NI contributions (note your NI is not reducing though!!!).

[JulianPH]

As has been said above you need to check your employment contract. If the 5% is a contractual obligation then you will continue to receive this and if the current provider is named in your contract (or it says the provider of your choice) I can't see how they can cease these contributions.

However, consider also that Royal London is a good provider and with every auto-enrolment scheme there is an effective charge cap of 0.75%. Equally you have no requirement to take (and therefore pay for) advice.

This means the new company scheme could be considerably cheaper the your current one and a saving of, say, 1% a year in charges is the equivalent of an extra 1% a year in compound growth - which seriously adds up over the years.

So the new scheme could actually be a much better deal for you. Check out all the charges on your current scheme to compare.

As for the contribution you now have to make it is the law, not your company, forcing you to do this and I would suggest you up this to match your employer's contribution if you can afford to do so.

[gmaz]

Thanks for the advice, my contract states that "The Company will contribute on your behalf to an approved pension scheme" so its a bit vague whether its a company scheme or my own personal one.

BTW I am 51 so I hoped I wouldn't be paying into the pension for much longer. Starting a new one with a minimum 4 years until retirement doesn't seem worth it.

Edited by gmaz on Saturday 28th January 17:34

[sidicks]

gmaz said:

Thanks for the advice, my contract states that "The Company will contribute on your behalf to an approved pension scheme" so its a bit vague whether its a company scheme or my own personal one.

BTW I am 51 so I hoped I wouldn't be paying into the pension for much longer. Starting a new one with a minimum 4 years until retirement doesn't seem worth it.

Why not?

Your contributions receive tax relief at your marginal rate, your investment returns accumulate tax free (near enough) and then the marginal rate of tax on your pension payments might be lower than your current marginal rate.

What else would you do with the money?

[Mattt]

sidicks said:

Why not?

Your contributions receive tax relief at your marginal rate, your investment returns accumulate tax free (near enough) and then the marginal rate of tax on your pension payments might be lower than your current marginal rate.

What else would you do with the money?

He means starting a complete new account instead of carrying on with the old one, as it's another load of paperwork etc.

[gmaz]

I thought I would get better returns on a larger pot that I've been contributing to for 17 years, than if starting a new plan?

[sidicks]

gmaz said:

I thought I would get better returns on a larger pot that I've been contributing to for 17 years, than if starting a new plan?

If the only charge is an annual management charge (as a percentage of the fund), which is what I'd expect, it shouldn't really make any difference.

[JulianPH]

There is no paperwork with an auto-enrolment scheme and the performance of, say, £1,000 in a small pot would be the same as £1,000 added to a big pot (if the fund is similar and the charges the same.

With the auto-enrolment scheme the charges are likely to be lower so this would increase performance. You are free to select a similar (or virtually the same) fund and do not have to stick with the default option.

Basically, there is nothing to worry about. When you hit retirement you can consolidate your pensions into one pot and look at how you want to take benefits.