Pensions: Don

20th May 2011

Lib Dem pension minister Steve Webb is out ‘selling' the concept of auto-enrolment to employers and was doing so this week at an event in of all places London Zoo. Mindful Money went along to the meeting, hosted by Jelf, a big consultancy that advises many of the UK's employers on pensions and other employee benefits.

Eventually, the minister will also have to convince you and we'll go through the arguments he's making later. But first an explanation of the system:

What auto-enrolment – sometimes it is called soft compulsion – means is that unless you choose to opt out of your company pension scheme, you will automatically be enrolled in it.

Depending on your employer's size, and starting with the big employers, you must be offered access to a scheme in the next couple of years.

You will have to contribute starting at one per cent of your salary and your employer must match that one per cent though it may offer more. By 2017 employers of all sizes must be putting three per cent, you will be expected to contribute four per cent at least and the government will contribute one per cent of your salary.

If your firm already offers a pension, and subject to meeting certain quality checks, it can qualify as an appropriate scheme. Otherwise you may be enrolled into something called NEST, a semi public scheme for firms that don't want to arrange their own pension scheme with a private sector provider.

However and this is the key part, you can opt out at any time. In that case you will not pay into a pension and receive your contributions in your salary but you will not receive those employer contributions into a pension.

The pension minister Steve Webb believes he has found a way to convince you not to opt out.

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